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First Woman Approved to Head Fed; Markets Little Moved


Jan.07.2014

Well I was very much moved. How about you?

As an Invest Diva follower, I’m assuming  you are comfortable with Janet Yellen’s assignment to lead the U.S. central bank just as it begins to unwind at stimulus. All of the no votes came from republicans but that’s probably a sign of discomfort with the U.S. central bank's unconventional policies as well as the partisan rancor in the Senate against any of President Barack Obama's nominees.

janet yellen

Yellen’s confirmation as the new Fed head didn’t get a blockbuster effect as investors had already priced it in. In fact, price action during the Asian session was mostly muted. USD/JPY and USD/CHF remained in tight ranges while EUR/USD and GBP/USD gave back around 20-30 pips worth of gains.

From the UK, Chancellor George Osborne has warned that the welfare budget will have £12bn shaved off it after 2015. The money is part of a large saving of £25bn that he intends to make across government in order to fund tax cuts for "the lowest paid" and then see what's left over for everyone else.

Economic data out of Europe yesterday showed that Spain continues to push forward, whilst France is continuing to suffer. PMI numbers from Spain showed that their service sector saw the fastest expansion since 2007, whereas France's overall PMI number (combined services, construction and manufacturing) fell to a seven month low - which could signal France falling back into recession. The eurozone as a whole saw modest expansion, in line with expectations, but nothing to get excited about.

Australia’s trade data also didn’t get much attention. We only saw a $118M trade deficit (instead of the expected $300M figure) thanks to a 1% decline in imports and a flat reading for exports. The Aussie didn’t get much action from it as AUD/USD slowly slid by 40 pips max while AUD/JPY remained in a 30-pip range.

3 Events to Get Excited About This Week

1. FOMC Meeting Minutes (Wed, 8 pm GMT) 
Unless you've been living under a rock, you'd remember that the December FOMC statement was when Fed policymakers finally decided to taper. They announced a $10 billion reduction in bond purchases and it would be interesting to see how many Fed officials supported this move. Markets will be scrutinizing what was said to find out just how firm the Fed's tapering plan is. You should also keep close tabs on Yellen's remarks as these could indicate whether the central bank is likely to announce another taper in their next meeting or not.

2. BOE Interest Rate Decision (Thurs, 1 pm GMT)
Another event set to (almost) rock the boat this week is the Bank of England interest rate decision. Although no actual changes to asset purchases or interest rates are expected, markets will be all eyes and ears for any possible changes. After all, the U.K. economy's recovery seems to have stalled recently while inflation has edged closer to target.

3. ECB Interest Rate Decision (Thurs, 2 pm GMT)
Last but not least is the much-awaited European Central Bank interest rate decision scheduled to take place on Thursday. Though just like the BOE, the ECB's meeting is expected to leave everything unchanged, we'll be interested to hear how Mario Draghi thinks 2014 is going to play out and also if he has got any comment on Greece, who look like they might be throwing their toys out on the pram again.

That's it for our fundamental update. I know you are right now banging on your desk and yelling "where the heck are my technical and sentiment analysis?"

Don't worry, we'll follow up if a worthy signal pops up.

Invest responsibly.
xoxo,
Kiana

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