Global equity markets are crashing all around us and with major European Banks suffering a crisis of investor confidence which is due to the increasing concerns over what many see as toxic bonds that sit on their balance sheets.
At such times of crisis, one would have hoped that head of the United States Federal Reserve would have taken this opportunity to bring some calm and stability to battered financial markets.
However, far from calming investors’ concerns, it would appear that the markets are now becoming increasingly concerned about the Federal Reserve’s inability to dictate policy.
In her address to House Financial Services Committee, Mrs Yellen stuck to the line which focused on a positive job market and the transitory effects of the collapse in energy prices.
However, in light of current events, this testimony would seem to be out of sync with the prevailing market sentiment.
Chairwoman Yellen needed to strike the right balance as she talked up the future prospects of the US economy. This meant that Yellen was not able to offer any real words of support.
There is a widening gap developing between the Federal Reserve and the markets with investors unwilling to believe the forward guidance that is currently being offered.
The end result of this credibility gap has led to indices crashing and the US dollar weakening against both the JPY and the EUR.
What will be key in today’s trading would be the ability or not for the major US indices to hold themselves above key major levels.
These being 15,284 for the Dow, 1,812.75 for the S&P and 3,906.50 for the Nasdaq futures contracts.
Although two of these levels have been temporarily breached, a daily and weekly close beneath these levels will open the strong possibility that equity markets will take another disastrous leg lower.