Yellen highlights global growth fears

• Markets rally, yet bearish shadow remains
• Yellen testimony mixed, yet indices drop
• Fed rate environment becoming increasingly muddy

Today is providing some much needed respite from the rout which has characterised global stock markets in the first seven trading days of February. While investors will no doubt be breathing a sigh of relief as European markets head north, there is a feeling that we are not out of the woods quite yet as bearish sentiment lingers.

Today’s testimony from Fed chair Janet Yellen to Congressional members provided the big ticket event of the week, where markets hoped it would shed further light on interest rate expectations at the FOMC. Yellen’s testimony was predictably mixed, as her acknowledgement that a Chinese-centred slowdown is detrimentally impacting US growth expectations was offset by yet another reference to a plan for steady and gradual rate rises going forward. Interestingly, a sell-off in both US and European indices in the face of seemingly dovish comments from the Fed, highlights the underlying bearish sentiment which has driven global stock markets of late.

It is clear that the Fed is some way from reversing its current pathway and moving towards an environment where negative rates are deemed necessary. However, with global stock markets crashing, global growth of a slowing path and financial conditions tightening as a result, it is becoming evident that we may not see another rate hike for quite some time.