Janet Yellen's First FOMC Press Conference Spooks Global Stock Markets

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Stock Market Trading

: 21 March 2014

Strong American manufacturing data and a resilient employment sector defying the cold weather turned the tables yesterday, pushing US equities higher.

Specifically, the Dow Jones rebounded 130 points to 16,340 after falling sharply on fears that interest rates could rise sooner than previously thought.

Despite overnight gains in the US and Asia, European markets are expected to see a flat start as they obviously need a little more evidence to rally when faced with the current headwinds.

Although the FTSE is languishing around unchanged on the week, the DAX and the CAC actually look set to see out the week with respectable gains.

However, even though growth in Europe is tepidly optimistic, markets remain well off this year's highs.

Much of this is because we have seen headwinds in China continue to pick up the pace and the geopolitical powder keg in Ukraine still doesn't look to be settling down any time soon.

For now though, traders will be hoping that nothing rocks the boat too much today so they can at least end the week on a positive note.



Stock Market Trading

: 20 March 2014

Federal Reserve Chair Janet Yellen spooked the global markets during her first FOMC press conference yesterday.

After a very dovish statement, when pressed about rate hikes, Yellen suggested that we may see rate rise 6 months after the end of tapering.

The market has blindly calculated that, assuming tapering at $10 billion a month, this would be mid-2015.

However, this doesn't tally with the tone of the words of the statement and I wonder whether a bit of stage fright took hold in front of the glare of the cameras for the first time.

After removing the 6.5% unemployment threshold to allow loose monetary conditions to persist even longer, it wouldn't make sense to then blindside markets with the threat of a rate hike nearer than anyone had forecast.

Either way, the projected pace of tightening was clearly a bit of a surprise as equities tumbled, with the Dow Jones losing 117 points to 16,211.

In fact, European markets are set to open lower this morning as the knee jerk reaction to Yellen's comments continues.

Expect regional Fed members to be hitting the media circuit soon, trying to finesse what she actually meant.



Stock Market Trading

: 19 March 2014

The Dow Jones extended its gains last night, rising another 90 points to 16,333.

The move higher came on the back of encouraging housing figures which boosted hopes that the economy can withstand the current geopolitical turmoil.

In addition, Russian President Vladimir Putin, when commenting on annexing Crimea, suggested that he is not looking to split up Ukraine.

Despite the positive moves in the US, European stocks are set to open flat this morning as traders hunker down before tonight's FOMC statement.

Markets seem quite comfortable with the idea of another $10 billion taper, however, just like Mark Carney and the MPC, Janet Yellen is expected to abandon forward guidance for some form of fuzzy guidance.

As the US unemployment rate teeters near the FOMC's threshold of 6.5%, she will be looking for a less restrictive monetary line in the sand, i.e. a way of keeping rates accommodative for as long as she sees fit.

The Fed's economic projections for 2014, particularly the GDP figure, will also be of interest to traders.

If the GDP figure is unchanged, or inconceivably raised, then this would be quite bullish following the impact of the weather at the start of the year.

On the other hand, traders may simply shrug off a slightly weaker outlook by blaming the weather as they have done with pretty much all the other weak data recently.

Closer to home, we have the UK budget to contend with.

Even with an election looming, there are no vote enticing giveaways expected as George will probably stay the course on fiscal responsibility.

There has been some chatter that tax cuts will feature somewhere in the budget, but these are likely to be tweaks rather than a meaningful amount of extra money in your pocket.

The only certainty is that even if one section of society is blessed with a tax cut, its purchasing power over beer and cigarettes will be greatly diminished.



Stock Market Trading

: 18 March 2014

As investors were assessing developments in Ukraine, where a referendum paved the way for Russia to annex Crimea, the Dow Jones rebounded 180 points to 16,243.

The rally was supported by US economic data which showed a rise in industrial production and fuelled optimism that the world's biggest economy is recovering from its severe winter.

Nevertheless, European equities are set to open mixed as traders wait for further cues.

The West's reaction to the Crimean referendum result was pretty feeble and so traders seem to believe that Putin won't feel the need to flex his military muscles any more in the short-term.

Looking at the economic calendar, there's not much to trip traders up today, ZEW surveys are expected to show a slight dip and the German Constitutional Court is expected to sign off on the ECBs ESM.

As long as they don't chime in with some comments about the legality/illegality of the big bazooka, the OMT, then traders will probably start to position themselves for tomorrow's FOMC Statement.



Stock Market Trading

: 17 March 2014

European equities are set to edge lower following the Crimean referendum.

Exit polls have suggested that there was overwhelming support from the local populace to leave Ukraine and become a part of the Russian Federation.

The result probably won't be a surprise to CFD markets, as it was widely expected, and so we are seeing only muted moves lower.

The falls haven't been larger because the question of how this situation develops from here is in the hands of those involved in the diplomatic back channels.

Although the West condemned the decision to hold a referendum, and are now condemning the result, there hasn't been any real action taken against Russia during the whole Ukraine episode.

As a result, there's a slight feeling that nothing will actually happen to antagonise Russia other than an international ticking off.

Ahead of Sunday's referendum in Crimea, talks between US Secretary John Kerry and Russian Foreign Minister Lavrov failed to find common ground, keeping investors on the edge.

At the same time, consumer confidence in the US unexpectedly slumped to a four month low as the cold weather took its toll.

This saw the Dow Jones drop by 62 points to 16,601, and the index remains on the back foot this morning.


By Jonathan Sudaria, 21 March 2014


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