Article / 07 June 2016 at 7:00 GMT

Morning Markets: Yellen stepover sparks equities

Former managing editor, / Saxo Bank



  • Germany: Industrial Production                 (0600 GMT)
  • Eurozone GDP                                           (0900 GMT) 

With the neatest of stepovers and just in time for Friday's European football Championship's opener, Federal Reserve chair Janet Yellen changed direction and left the market gasping at her nifty footwork.

Yellen warned the market not to "attach too much significance to any single report" in reference to last week's nonfarm payrolls shocker, but nevertheless opted for a cautious tone that has diminished the chances of a rate hike this summer and put the Fed back to where it was two months ago with a likely one-hike trajectory for the rest of 2016.

Equities were in expansive mood in the aftermath with the MSCI Asia Pacific Index homing in on its strongest close since April following on from the S&P 500's highest close for 2016 and the Dow Jones also up 113 points.

The Nikkei also threw off its despondency from Monday as it touched towards a 1% rise before settling close to 0.5% up on the back of a slight strengthening of the dollar against the yen. Elsewhere, the dollar remained somewhat marooned as EURUSD edged higher in the hour before the European-session open and Brexit-encumbered sterling moved back above 1.45 as the shockwaves from the Daily Telegraph poll Monday ebbed away.

Both oil benchmarks were significantly higher too with Brent threatening to hit a year high towards $51/barrel and WTI coming within a whisker of joining its European counterpart above $50/b, potentially sparking some energy exposure after months in the doldrums. Gold also continues to froth at above the $1,240/oz zone.

Dollar weakness seems to be the key driver here. Perhaps the June 14-15 FOMC meeting will give the greenback a bit more clarity. Or maybe establishment figure Hilary Clinton's near-certain victory in the race for the Democrat presidential nomination to take on "maverick" Donald Trump might help spark a comeback. Or perhaps not.

Market signals

Asian session

  • The RBA kept the official cash rate on hold at its record low of 1.75%
  • It follows a raft of strong economic data, including GDP, up 1.1% in Q1 2016
  • Iron ore is up more than 6% in three days and Australian mining shares are soaring
  • Australian consumer confidence rose 3.2% to 116.8, its highest since January 2014
  • Asian shares hit a five-week high following the Fed chair's speech
  • The AUD jumped above 74 US cents after the RBA held rates steady at 1.75%
  • West Texas Intermediate crude oil fell 0.3% to $49.55/barrel
  • Asian stocks rose for a third day and South Korea’s won strengthened
  • The MSCI Asia Pacific Index rose 0.6% as of 0355 GMT
  • West Texas Intermediate crude oil fell 0.3% to $49.55/barrel
  • The JPY also stepped back to 107.545 per dollar from Monday's five week high of 106
  • The Nikkei 225 was up  83.22 point or 0.50% 0501 GMT
  • At 0507 GMT the Hang Seng was up 0.78%; the Shanghai Composite was down 0.18%
  • The S&P/ASX200 was up 0.08%, at 5364 at 0534 GMT

Forex ahead

  • Dollar weakness pervasive after Yellen speech except against yen
  • "Fat finger" sparks near 150-pip spike in GBPUSD
  • EURAUD sliding towards 1.50 if risk-on mode continues

From the Floor

Keep it vague. "The lack of timings in Yellen's speech was very obvious", says Hardy.

September chance. "The market is only putting a 42% probability for a September hike", says Garnry.

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

Unless the Bank of Japan intervenes, the strong JPY is set to keep USDJPY sliding, explains James Picerno.

Tough talk
Fed chair Janet Yellen's speech yesterday was devoid of any suggestion of another rate hike in coming months. And Max McKegg says it’s likely the Federal will again talk tough next week.

Fed speaks
The USD selloff slowed dramatically after Janet Yellen's speech flagging rate rises down the track, writes the team at Saxo APAC Sales Trading. 

Choppy summer
There's been a surprising like of volatility in stock option markets despite some flight to safe-haven assets, writes Georgio Stoev, bought something out to give over the next month or so.

 Australians enjoyed some good economic figures today but inflation remains low. Photo: iStock

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