Fed and Riksbank dominate early trade

The Fed is at the centre of market discussions first thing this morning as the markets try and decipher yesterday’s testimony from Janet Yellen. The major theme stated that the Fed would be unlikely to change their stance on rate hikes despite market turmoil with Janet Yellen going as far as to say that the recent moves in the stock market are signs of a healthy correction. Stock markets have plunged further on the open this morning after the news from the Fed with yet again banking stocks across Europe dominating with Soc Gen falling over 13% after missing earnings expectations.

The bigger moves are coming out of the currency markets this morning after the Riksbank in Sweden cut the repo rate and advised that the rate could go lower still. The repo rate was cut by a further 15bp to -0.50%, with any move lower in benchmark inflation rate likely to signalling more easing of policy. Although not directly correlated to the wider market we did seem to get the moves after this announcement with USDJPY extending the losses even further while EURUSD pushed through 1.1350. Gold prices are yet again flying higher as the risk aversion dominates with moves through key upside levels to trade close to $1,220, this comes after calls that $1,000 was still on the cards.

The Fed is the dominating force however with Janet Yellen sticking to her guns amid questioning from a Congress obsessed with the sound of their own questions. Despite insisting that the Fed was on course with its policy it seems like the healthy correction in stock markets will cause the Fed to wait for markets to calm before there is another move in the benchmark rate. However the divergence will remain between global central bank policy as Janet Yellen said she doesn’t see that there will be the need to cut rates in the near future. Fed Funds Futures now put the possibility of a rate hike in March at virtually 0%

Overall the Fed is looking like an excuse for markets this morning, with nothing particularly dovish or Hawkish from Yellen yesterday. Stock markets have fallen as worries about debt continue within European banks, and have been exacerbated by poor earnings from Soc Gen. The pressure is likely to continue later into the session as we await import export and weekly jobs numbers out of the US, but with Wall Street futures pointing to a weaker open later this afternoon, it may well take something big to turn markets positive.