Financial markets had clearly given Yellen a vote of confidence overnight after her first testimony to Congress as Fed chair. The Dow closed 192.98 pts, or 1.22% higher at 15994.77 after breaching 16000 handle. The S&P 500 also rose 19.91 pts, or 1.11% to close at 1819.75. Long term yields extended recent consolidations with 10 year and 30 year yields closing mildly higher. The Dollar index was steady at around 80.50 level and hovers around the 55 days EMA. Positive risk sentiments were given another lift by China trade data in Asia, with major equity indices extending gains. At the time of writing, Japanese Nikkei is trading up 100 pts, or 0.7% while Hong Kong HSI is trading up 240 pts, or 1.1%.
Fed Chairman Janet Yellen did not make any groundbreaking comment about the US economic outlook and the FOMC's monetary stance. Instead, she gave a balanced assessment on the country's recovery trajectory. For instance, she indicated that, despite the decline in unemployment rate, the recovery in the job market is not yet complete. There has been a large share of people who have been unemployed for over 6 months or who are working part-time but are looking for full-time jobs. These are the 2 main reasons that preventing the unemployment rate to fall further. Yellen also commented on the financial market volatility, which was driven by selloff in emerging market currencies, denying any substantial risk to the US economy at the current stage. On rate hike, the Chairman indicated that crossing both the employment and inflation thresholds set by the Fed is needed to trigger consideration of tightening. More in Yellen Testified...
As mentioned in our weekly report, the Dow formed a short term bottom at 15340.69 after drawing support from the medium term channel. And the rebound from there continued and met 55 days EMA as expected. We'd expect further rebound in the index in near term and a test on 16500 level could even be seen. However, we'd like to point out again there 16588.25 should be a medium term top, as a five-way sequence from 12035.09 has completed there, on bearish divergence condition in weekly MACD. Price actions from 16588.25 should develop into a corrective pattern that's still unfolding. That is, we'd expect strong resistance below 16588.25 to bring another decline for another low below 15340.69, possibly to 38.2% retracement of 12035.09 to 16588.25 at 14838.97 cluster level.
Risk sentiments were given additional boost by China trade data. Both export and import unexpectedly accelerated in China in January. Exports jumped 10.6% yoy versus median consensus of 0.1% yoy gain. Imports also rose 10.0%. Overall trade surplus came in at USD 31.9b, the widest since January 2009. There were concerned of slowdown in China after dismal PMI data released recently. But the trade data somewhat defied expectations and eased some concern over the Chinese economy.
Elsewhere, the Australia Westpac consumer sentiment dropped -3.0% in February. Japan tertiary industry index dropped -0.4% mom in December, machine orders dropped -15.7% mom. Swiss CPI, and Eurozone industrial production will be released in European session today. But the main focus will be on BoE inflation report. BoE is expected to provide updated economic projection. Most importantly, Carney would make use of the report to update the forward guidance on monetary policy.