Equities in the region started out positive after Yellen`s dovish comments but only the Chinese Shanghai Comp could hold onto gains, finishing up 1.57%, after better than expected earning data and prospects that China`s pension fund would start investing in the nations stock market this years. The ASX 200 finished flat at 0% after initial gains were evaporated by poor performance in the banking and energy sectors. Japans Nikkei 225 lost 0.76% in the light of a stronger JPY and worse than expected Industrial Production figures.
Fed Chair Yellen set the tempo for markets yesterday and probably has set the course for the USD in the upcoming months as she delivered a dovish statement in which she stated that caution should be taken with future rate hikes and opening up the door for further stimulus if needed, in the form of deploying forward guidance or further QE.
Equities relished the dovishness and the DJIA finished up 0.56%, the S&P500 finished up 0.88% and the NASDAQ finished up 1.58%. The USD, on the other hand, weakened across the board as dollar bears take a firm grip hoping to extend their recent dominance.
Further weakness is expected in the USD, with markets ready to scrutinise all future releases for further confirmation, and with this week’s non-farm payrolls due, we could see the USD weaken considerably on the back of worse than expected numbers.
Today’s data out of the region comes in the form of the ADP Non-Farm Employment Change which is expected at 194K, slightly lower than last month’s 214K.
ECB members dutifully embarked on some dovish jawboning as they try to stem the current strength of the EUR in light of the USD weakness, which will undoubtable put a dampener on the ECB`s inflation target goals as higher exchange rates drive inflation lower. ECB`s Makuch stated that it is difficult to see where the boundary for negative rates is, implying that there is room for more easing, while Jazbec stated that he thinks QE is more beneficial that damaging.
Crude oil found support after API Crude Inventories were released as 2600K vs the expected 3300K and notably lower than last week’s 8800K. Crude price remained bid after a weaker USD lifted commodities despite reports that Iran would not take part in the planned output freeze.
Gold bounced back up to 1240 in light of Yellen`s dovish comments which saw the USD devalued and the precious metal adjusted upwards to account for this.