Advertisement
Advertisement

Financial Markets Respond to Yellen with Whipsaw Action

By:
James Hyerczyk
Published: Aug 26, 2016, 16:00 UTC

As expected, the financial markets whip-sawed on Friday following a speech by Fed Chair Janet Yellen. U.S. equity indices in particular posted a two-sided

FEDERAL RESERVE

As expected, the financial markets whip-sawed on Friday following a speech by Fed Chair Janet Yellen. U.S. equity indices in particular posted a two-sided trade as investors digested her remarks. Traders seemed to react to every key point she make, selling when she said something positive about the economy and buying when she expressed caution.

The takeaway from the speech and the market action indicates that the Fed wants to raise interest rates, but they want everything to be perfect before they do. With the Dow Jones eventually holding nearly a 100 point gain, it appears that the equity markets are treating her much anticipated-speech as a non-event. Although her general tone was perceived as hawkish, nothing new came out of the speech so traders reacted accordingly.

In addition to the Dow’s 100 point gain, the benchmark S&P 500 rose about 0.5 percent while the NASDAQ Composite posted about a 0.6 percent gain.

As bits-as-pieces of her speech began to hit the newswires, government bond yields rose, but overall U.S. Treasury yields traded mixed after the speech was delivered. Traders drove two-year note yields to 0.7894, but move the benchmark 10-year yield lower at 1.54. The two-year yield also spiked to 0.817 percent, its highest level since June 6, while the 10-year yield momentarily broke above 1.6 percent.

The whip-saw action in the government treasury yields also produced similar movement by the U.S. Dollar Index. It initially rallied with the rising yields before dropping about 0.1 percent.

Gold investors liked Yellen’s comments with the December Comex futures contract moving up $12.80 to $1337.40, before holding ground. A rally by gold futures over the near-term would indicate that investors are betting against a rate hike in 2016.

The British Pound recovered after earlier weakness with the GBP/USD moving to 1.3231, up 0.0042 or 0.32%. Earlier in the session, the Sterling weakened after the release of disappointing UK GDP data. The EUR/USD posted a volatile two-sided trade in response to Yellen with a bias to the upside.

Yellen’s comments also supported dollar-denominated crude oil in addition to reports that Yemeni missiles hit Saudi Arabian oil facilities. Gains were limited, however, by comments from the Saudi energy minister that watered down expectations for a production freeze.

In other economic news, U.S. Preliminary GDP came in as expected at 1.1%, slightly below the 1.2% posted in the last report. The Goods Trade Balance came in better at -59.3 billion versus a -63.3 billion forecast. Consumer Credit disappointed with an 89.8 reading amid expectations of a 90.6 read.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

Did you find this article useful?

Advertisement