Yellen comments recharge markets

US central bank comments have lifted markets this afternoon, with the FTSE 100 hitting fresh record highs as the session heads to a close.

Janet Yellen
Source: Bloomberg

UK housebuilders hit hard

Attention has been focused on Greece for most of the day, but we can always rely on the Federal Reserve to throw markets a bone when it seems as if positive news is in short supply. Despite an early comment on terminology that spooked investors, Janet Yellen continued to indicate that the Fed remains some distance from achieving its inflation mandate. Her testimony revived a dormant market that had been lulled into sleep by interminable updates on the Greek situation. The shorter version is this – we can stop worrying about Greece for now.

With this worry removed it looks like stock markets are free to power ahead, especially as the start of European Central Bank quantitative easing looms.

Housebuilders in the UK have been hit hard today as political risk reared its head in the sector. Persimmon is sounding a warning that the upcoming election threatens to disrupt home buying in the UK, although the fact that the shares recovered off their lows from the morning suggests that investors are prepared to ride out the storm in return for the prospect of better weather later in 2015.

US markets lifted by Fed comments

US indices have been reenergised by Janet Yellen’s testimony this afternoon, having looked distinctly nervous as the diminutive central banker took her seat. From the immediate reaction, it looks as if Ms Yellen has achieved an ideal balance in hawkish and dovish outlooks; the Fed looks to be in charge of the situation, sketching out a plan should US data continue on its serene course, but with a clear nod to the worsening outlook for other parts of the global economy. Markets took the testimony well, with investors appearing to believe that the Fed will not seek to stand in the way of further gains for stocks.

Gold below $1200

Ms Yellen’s testimony was the opportunity oil bulls needed to reverse the morning’s losses, but in the longer term the fundamental picture will reassert itself.

BHP Billiton’s statement regarding increasing shale production has yet to be fully digested by the market, but it signals the way to lower prices in coming weeks.

Gold and silver failed to make much headway following Ms Yellen’s testimony – she may be more dovish than expected but there is no mention of a return to easing, leaving gold marooned below $1200 again.

USD/JPY's rise fades

USD/JPY’s spike towards Y120 was short-lived – as usual the market got carried away and forgot that Janet Yellen was not seeking to please either doves or hawks. Y119.40 has marked the limit of the currency pair’s ambitions, and until the Fed finally begins raising rates, or at least drops ‘patient’ from its statement, we should not get overly excited about a breakout for the currency pair above December’s high.

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