A busy day for economic data today as we saw the release of PPI in Germany while over in the US market participants eagerly awaited initial weekly jobless claims, existing home sales and the Philly Fed index, all while attempting to make sense of yesterday’s monetary policy meeting. On the whole, data painted a mixed picture, and markets were left struggling to decide on direction especially after a more hawkish tone from policy makers.
The FOMC diverged from its usually ambiguous timing expectations as Yellen let slip that interest rates could rise “about six months” after tapering had finished, leaving equity investors scrambling for the door as treasuries rose. Further details from this month’s FOMC meeting indicated that the majority of committee members expected rates to rise faster than previous estimates of 0.75% to 1% by the end of 2015, which kept European equity indices under considerable pressure throughout much of the day and contributed to Wall Street opening on the back foot.
Common sense finally prevailed and investors in both the S&P 500 and DJIA rinsed out the bitter taste left from yesterday’s monetary policy meeting, focusing on the improving underlying conditions as initial weekly jobless claims came in 2,000 below expectations at 320K and the Philly Fed index rebounded to 9.0 from -6.3 the previous month.
After losing 1.9% yesterday, spot gold prices tested support levels all the way down to $1,320 before recovering towards the open at $1,330 as investors struggled with direction. Gains were also capped on a surging dollar index, which rallied to a three week high above 80.350 today. After struggling with direction in the run up to the meeting the dollar index has rallied 1.1% since yesterday where it opened at 79.377 as market participants were optimistic that the hawkish comments from Yellen would lead to an interest rate rise sooner than initially expected. However, any sustained recovery in risk assets will hinge on economic data showing the US economy recovery remains on track after the unusually cold weather impacted February data.