Markets rise as Yellen says rates hikes will be more gradual

US stocks closed higher on Tuesday reversing earlier losses after Federal Reserve Chair Janet Yellen said the central bank should proceed cautiously in raising interest rates. The dollar fell as investors priced in Yellen’s dovish comments which implied that the pace of interest rate hikes would be more gradual. Yellen emphasized increased risks to economic outlook with economic and financial conditions less favorable than in December when interest rates were raised for the first time in a decade. She said it was too early to tell if the increase in the core inflation since the beginning of the year would prove durable. Central bank policy makers have mentioned they want the inflation to stay below the 2% target level. Personal consumption expenditure (PCE) index, the preferred inflation gauge of Federal Reserve policy makers, has been rising in recent months with core PCE index recording a 1.7% rise in 12 months through February, edging towards the policy target level. Proponents of rate hikes cite the improving labor market and rising inflation in advocating interest rate normalization sooner than later. Treasury yields fell and live dollar index data indicate the ICE US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, fell 0.8% to 95.1570. The S&P 500 closed 0.9% higher at 2055.01, led by 1.6% jump in technology sector. The Dow Jones Industrial Average rose 0.6% settling at 17633.11, buoyed by 2.4% jump in Apple and 2.2% gain in Microsoft. Both stock market indexes hit their highest in three months with S&P 500 index recording a year-to-date gain of 0.6%. In economic data consumer confidence index reported by Conference Board jumped in March, and the S&P/Case-Shiller 20-city home price index for January was stronger than expected. Today at 13:00 CET Mortgage applications will be released in US. At 14:15 CET ADP Employment Change for March will be released. The tentative outlook is positive for the dollar.
European stocks closed higher on Tuesday ahead of Fed Chair Janet Yellen’s speech. The euro strengthened after Yellen implied rates would remain lower longer. The shared currency rose to $1.1294 late Tuesday in New York compared with $1.1198 late Monday. The Stoxx Europe 600 index rose 0.5%. Germany’s DAX 30 added 0.4% to 9887.94, France’s CAC 40 gained 0.9% while UK’s FTSE 100 edged down less than 0.1%. Today at 11:00 CET March economic and consumer confidence indexes will be released in euro-zone. And at 14:00 CET preliminary Consumer Price Index will be published in Germany. The tentative outlook is positive for the euro.
Asian stocks are climbing today supported by Fed Chair Jane Yellen’s dovish comments. Chinese stocks are rising with Shanghai Composite Index up 2.7%, Australian stocks are advancing too with ASX All Ordinaries Index up 0.1%. Nikkei fell 1.3% today hitting lowest level in two weeks as exporters were hurt by stronger yen. Shipping stocks were sold off after data indicated Japan's factory output fell 6.2% month-on-month in February, the most since 2011. Given weak consumer spending and slowdown in China’s growth, major export market for Japanese output, falling factory output spurred concerns Japan’s economy may contract in first quarter.
Oil futures prices are rebounding today after falling for fifth straight session on Tuesday following news Kuwait and Saudi Arabia would resume production at the jointly operated 300,000 barrel-per-day Khafji field even as major oil producers are considering agreeing on an output freeze. May Brent crude closed down 2.8% to $39.14 a barrel on London’s ICE Futures exchange, above the session’s lows as the US dollar weakened. Prices are rebounding today after American Petroleum Institute industry group report late Tuesday forecast US crude stocks likely rose by 2.6 million barrels last week, less than analysts' expectations. Today at 16:30 CET US Crude Inventories will be released by Energy Information Administration.