Stocks rally and Aussie bounces on Yellen’s dovish testimony

February 28, 2014

The market thinks the Fed is in good hands and it seems clear that for the moment Janet Yellen already has the gravitas that her two predecessors, Messrs Greenspan and Bernanke earned over many years.

Last night she wandered up Capitol Hill to deliver the postponed testimony to the US Senate, which was delayed due to the weather a couple of weeks back. Yellen gave the market the sense that Her Fed would be a continuation of the Bernanke Fed.

The key for markets, as CommSecs Craig James put it this morning in a note to clients was that “the tone was more dovish than commentary provided two weeks ago. Yellen said the Fed would be on alert to make sure recent economic weakness was due to cold weather than a fundamental slowdown.” Which provided a lift to stocks.

So with 10 minutes to go before the close the Dow is up 0.28%, the Nasdaq up 0.46% and the S&P is currently on track for a new closing high up 6 points to 1,851 for a gain of 0.32%.

Across the ditch in Europe stocks were down until Yellen’s address having been hit by weaker than expected Spanish GDP (+0.2%), German unemployment stuck at 6.8% and low German CPI which printed at 0.5% slightly lower than expected. At the close the FTSE managed a small rally up 0.12% but continental stocks were lower with the DAX down 0.76%, the CAC barely changed down 0.02% while stocks in Milan and madrid were down 0.38% and 0.59% respectively.

Locally on the ASX overnight the SPI 200 March Futures contract is up 21 points to 5416 bid.

On global FX markets the Aussie has bounced nicely from a test of 89 cents in early European trade overnight to 0.8960 this morning down every so slightly day on day. While not an Aussie specific bounce, it was dragged higher by US dollar losses against the Pound and Euro, the Aussie’s performance was solid and reinforces the box it has been trading in recently.

Nicholas Darvas didn’t amass $2 million back in the 50’s trading by being a duffer and his box approach while I think is more suited to stocks has some resonance in markets everywhere.

So it is with the Aussie at the moment as you can see in the chart below.

Trade the range until it breaks.

Euro is back at 1.3713 off a low of 1.3641 while GBP is at 1.6687 off a low of 1.6615. USDJPY has regained 102 this morning and sits at 102.07. These lockstep correlations are a worry.

On commodity markets Gold is largely unchanged on the day at $1228 oz.  So while Gold didn’t do too much over the past 24 hours my system suggests that we are on track for a move down to $1313 which is my fast moving average. A move to here would be usual and which we have seen multiple times in GBP recently which has found support on my fast moving average.

We’ll see how it looks over the next few days.

Nymex Crude is down 0.28% to $102.30 Bbl and copper is at $3.24 lb. On the Ags corn lost 1.65%, wheat a massive 2.96% and soybeans fell 0.98%.

On the data front it is a big day for Asia with the South Korean manufacturing BSI out along with industrial and service sector production. In Japan we get unemployment, housing starts and CPI while in Australia private sector credit is released. Tonight is pretty big too with the release of German retail sales, French Consumer spending, Italian CPI and the more important EU wide CPI which will give a strong lead to what Mario Draghi and his ECB colleagues will do with monetary policy next month and whether they will embark on the QE path. In the US we get the next read of GDP for Q4.

Have a great day and good hunting

Greg

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