Fed chair Janet Yellen's testimony to Congress yesterday was quite positive as she acknowledged the considerable progress in labor market. Meanwhile, She also saw the recent sharp decline in oil prices as positives to the economy. Nonetheless, markets' interpretations on her comments were rather mixed. Some analysts maintained that Fed would have the first rake hike in June. Meanwhile, some others saw Yellen's overall message hinting at a later hike. Such interpretations were also clearly reflected in the mixed reactions in the financial markets. Dow closed up 92.35 pts, or 0.51% at 18209.19 while S&P 500 closed up 5.82 pts, or 0.28% at 2115.48. Both were historical highs. Treasury yields, on the other hand, dipped quite considerably with U.S. 30-Year yield closed down at 2.598 and U.S. 10-Year closed down at 1.988, back below 2 handle again. Dollar was stuck in tight range against other major currencies.
Fed Chair Janet Yellen in the congressional testimony reiterated the message that the rate hike schedule would be data-dependant, rather than time-dependent. She explained the meaning of the "patient" language, which implies that the economic conditions are unlikely to warrant a rate hike for "at least the next couple of FOMC meetings". Yellen, however, indicated that the committee would change its forward guidance in advance of rate hikes, though the change does not automatically signal a rate hike in a couple of meetings. The economic outlook was largely the same as what was delivered in the FOMC minutes. The central bank acknowledged "considerable progress" has been achieved in the recovery in the labor market whilst there remains room for further improvement. More in Upbeat Yellen Signaled Fed's On Course For Hike Later This Year.
Aussie was lifted by positive economic data from China in Asian session. The HSBC China manufacturing PMI rose to 50.1 in February versus expectation of a fall to 49.5. That was highest level in four months and was back above 50. Nonetheless, HSBC noted that "domestic economic activity is likely to remain sluggish and external demand looks uncertain." And, HSBC believed that "more policy easing is still warranted at the current stage to support growth." Also released in Asian session, Australia wage cost index rose 0.6% qoq in Q4 versus expectation of 0.7% qoq.
Looking ahead, Swiss will release UBS consumption indicator while UK will release BBA mortgage approvals in European session. US will release new home sales.