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Yellen States: Rate Increase Likely Appropriate

Published 02/15/2017, 04:02 AM
Updated 04/25/2018, 04:10 AM

FTSE +30 points at 7298

DAX +48 points at 11820

CAC +22 points at 4917

Euro Stoxx +13 points at 3322

The U.S. dollar appreciated and the U.S. stock indices renewed record as the FOMC Chair Janet Yellen said that a ‘rate increase will likely be appropriate in upcoming meetings’ if the economic recovery stays on course. Yellen added that the FOMC wouldn’t base the current policy on speculations about what may come down on the fiscal leg under the Trump administration. Although the Chair did not mention whether the increase would come in March or June, the hawkish tone revived the risk-on traders in New York. As of today, the market gives 34% probability for a Fed rate hike in March, 73.5% probability for June. The Federal Reserve (Fed) remains on the track for two to three rate hikes in 2017.

The Dow Jones spiked to a new all-time high of $20504.41, the S&P 500 traded at $2337.58 for the first time, as NASDAQ hit the record high at $5783.089. Financials lead gains on prospects of higher rates, therefore higher revenue margins for the financial business. Goldman Sachs (NYSE:GS) traded at a record high of $250.

Janet Yellen will testify before the House Financial Services Committee today.

The U.S. equity futures traded in the green in Asia, as major Asian markets joined the risk-on rally. Nikkei gained 1.08%, Topix added 0.97% as the USD/JPY climbed above 114.00. Hang Seng and Shanghai's Composite advanced 1.45% and 0.30% respectively.

Chinese H shares (shares of a company incorporated in mainland China that is listed on the Hong Kong stock exchange) gained the most amid the new credit in China surged to a record high in January (3.74 trillion Yuan ($545 billion) vs. 3 trillion yen expected). The data was in line with the rising inflation over the same period. The Chinese New Year has been prosperous this year and fueled optimism on the Chinese recovery despite tightening monetary conditions from the People’s Bank of China (PBoC) and the U.S. dollar appreciation.

The EUR/USD traded below 1.06 (50-day moving average) and tested 1.0566 (minor 23.6% retracement on post-Trump decline). Breaking below this level would pressure the 1.05 support, as the negative momentum gains pace.

Cable (NYSE:CABO) slipped below the 1.25 amid a softer than expected inflation report hit the headlines yesterday. The GBP/USD consolidated losses between 1.2446/1.2476 in Asia. With the positive momentum losing pace, we remain neutral between 1.2410 and 1.2575.

The appetite in gold remained limited. The yellow metal traded at $1225 as the U.S. yields shifted higher. The U.S. 10-year yields advanced to 2.48%. Improved U.S. yields will likely keep the XAU's topside limited. Offers are touted at $1230/1235.

The risk-on will likely be on the European traders’ breakfast menu. The European stock markets are poised to open higher. The FTSE 100 is called 26 points higher at 7294p at the open.

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