Yellen’s first stand

Janet Yellen made her first public appearance in front of congress on Tuesday. In the opening comments she was reassuringly vague about the progress of tapering or when investors could expect a rate hike. The two targets that have been set by the Federal Reserve are for 2% inflation and 6.5% unemployment rate “before the Fed would consider a rate rise”. Should the Fed targets be met, Janet Yellen reminded investors that it would not automatically trigger a rate rise. 

After the correction, equity markets have probably caught a few people of guard with the recent bounce back. Those who have been expecting and preparing for a correction had barely a week to react. 

I am not quite sure why the equity markets have snapped back quite so quickly as the recent economic data been a tad mixed. Last weeks US employment data has suggested that the unemployment rate could tick away from 6.5%, rather than hit it. 

Other pieces of news that equity investors have not reacted to, earnings season overall remains in line with previous earnings season but the latest earnings reports have been a little disappointing. Negotiations are on going to agree the raising of the debt ceiling. The weekend headlines that Eurozone banks could face a short fall of £42bn. The German court did not give its backing to the ECB’s outright monetary transaction program, passing the buck to the European court of Justice. Those who think the Eurozone worries are over are probably mistaken.

The ECB has yet to act with their form of QE, and the recent Eurozone issues could increase the possibility that it could act. The Fed may be tapering but is still unlikely to raise rates, particularly if the data is softening. Japan has seen an economic recovery with its policy of weakening the yen. The yen has rallied at the start of the year that could prompt another round of Japanese QE. I wonder if we are back to bad economic news being good news for equity investors?

The FTSE 100 has traded within a range of 6800 and 6400 for over 6 months now, and once again it got close to 6400 and rallied. At present its roughly in the middle of that range, at some point that range will be broken, my belief is to the up side, but I would also not be surprised to see the period of consolidation last a little longer.

Posted on February 12, 2014 .