Positive Reaction to Tuesday’s Yellen Testimony and China Reopens

February 25, 2015

Today is a quiet day from a data-release standpoint, so investors will be looking to testimonies by Fed Chairperson Yellen and ECB President Draghi for direction.  Yellen reprises yesterday’s Humphrey-Hawkins semiannual appearance before congress, this time testifying to the House Financial Services Committee.  Draghi will be speaking before the EU parliament.  The ECB took a hardline stance in the recent Greek bailout talks, which yielded a 4-month reprieve from imminent Grexit or default but failed to forge a credible strategy for the Greek economy ever getting back on its feet.

China, whose markets closed for a week in observance of the Lunar New Year, finally reopened.  HSBC published its preliminary February purchasing managers survey of Chinese manufacturing, revealing a four-month high and the first above-50 result since November.  However, export orders contracted for the first time in ten months, and both input and output producer prices declined again.  Moreover, the overall reading of 50.1 only connotes an economy that is stagnating.  A separate Chinese data release showed a 0.1% downtick of consumer confidence in February.

The dollar has depreciated today by 0.8% against the kiwi, 0.6% relative to the Australian dollar, 0.5% relative to the loonie, 0.3% versus sterling and 0.1% against the yen and Swiss franc.  EUR/USD is unchanged, and the yuan is off 0.1%.

Chinese share prices fell 1.2% on this first day after holiday.  But stocks rose 0.7% in Taiwan and South Korea, 0.5% in Indonesia, and 0.3% in Australia.  Equities edged up 0.1% in Singapore and Hong Kong, jumped 2.1% in New Zealand, and closed 0.1% lower in Japan. 

European bourses are down today.  Stocks have fallen 0.7% in Greece and Italy, 0.4% in Great Britain and Switzerland, 0.3% in France, 0.2% in Spain, and 0.1% in Germany.

Yellen’s testimony Tuesday was construed as mildly dovish, helping to nudge long-term sovereign debt yields lower not only in the U.S. where the 10-year futures Treasury is hovering around 1.96% but in other countries as well.  Ten-year British gilts and Japanese JGBs have declined by five and four basis points.  The 10-year German bund is a basis point softer, but the comparable Greek yield failed to dip any further this morning.

Comex gold is 0.9% stronger at $1,208.00 per ounce.  West Texas Intermediate oil climbed 0.5% to $49.54 per barrel.

The four-quarter rise in the Australian wage cost index, 2.5%, slid 0.1 percentage point in 4Q14 to a 17-year low, but the quarter-on-quarter rise of 0.6% was the same as in 2Q and 3Q.  Aussie construction work done slid just 0.2% between 3Q and 4Q of last year, which was the smallest decrease since 3Q13.

Sri Lanka’s central bank officials left policy interest rates unchanged yet again.

Union Bank of Switzerland reported a drop in its Swiss consumption indicator to a reading of 1.24 in January from 1.42 the month before.  1.24 is also slightly weaker than the August-November average score.

The British Bankers Association estimated mortgage approvals in January at 36,394, 1.6% higher than in December.  Although the first monthly increase since June, the level was still 20% less than a year earlier.

French consumer confidence improved two points in February to a 33-month high of 92, which beat expectations. 

For oil producer Norway, plunging energy prices undercut consumer confidence last quarter, depressing such to 7.4, weakest since 2Q09, from a reading of 13.6 in the third quarter.  Norwegian unemployment stayed at 3.7% last quarter.

Spanish producer prices fell 2.8% in the year to January and by 0.5% from December.  Icelandic consumer prices slumped 1.1% last month and were 0.1% lower than a year earlier.

Real GDP in Hong Kong grew only 0.4% last quarter, less than half as much as forecast, and was 2.2% higher than in the final quarter of 2013.

U.S. mortgage applications sank another 3.5% last month, as the 30-year fixed mortgage rate rose six basis points to a seven-week high of 3.99%.  U.S. new home sales get reported today.  On Monday came news that existing home sales in January hit a 9-month low, 4.9% below December’s level and just 3.2% better than a year earlier.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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