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Global markets await Yellen’s monetary policy report
February 11, 2014, 1:37 am

International markets are repositioning themselves ahead of new Federal Reserve Chairman Janet Yellen’s first monetary policy report, which is likely to address fears that recovery in the US labour market may be slowing down.

There is speculation whether Yellen’s report on Tuesday will blame the weather for the disappointing and less-than-forecast job creation data.

The US added 113,000 jobs in January, the Department of Labour reported last week, bringing the average growth rate over the last three months to just 154,000 jobs – nearly 25 per cent less than the 200,000 level in previous months, and far below expectations.

The jobless rate dropped to 6.6 per cent from 6.7 per cent, the report showed, but there are millions of unemployed workers who have given up looking for work, possibly due to the Arctic Freeze which twice hit many parts of the US Eastern Seaboard and the mid-West.

US markets closed higher on Monday in anticipation of Yellen’s report. The Nasdaq gained 0.54 per cent; the S&P 500 rose 0.16 per cent; and the Dow Jones Industrial Average slightly nudged upward 0.05 per cent.

That’s little relief, however, as overall the S&P 500 is performing at 2.6 per cent lower than last year while the Dow is down 4.7 per cent.

Meanwhile, the 10-year Treasury securities yield rose after falling to 2.57 per cent – its lowest level since November 1 – on Friday in the wake of the poor jobs data.

In Monday closing, the 10-year Treasury yield rose to 2.678 per cent.

Interests rates are directly proportional to Treasury yields; if the yield goes up, so do interest rates.

But the Federal Reserve has not raised interest rates above the near zero mark adding that it would not consider doing so until the unemployment rate falls to 6.5 per cent.

In the meantime, markets are continuing to speculate whether Yellen will continue the tapering initiative which began on December 18.

The Fed’s policy-making Open Market Committee (FOMC) has twice in the past two months scaled back its quantitative easing measures by a total of $20 billion to $65 billion.

But the reasons for the taper – citing better than expected economic indicators and the fall of the unemployment rate below 7 per cent – may not support another $10 billion cut.

International markets are as a result holding their breath in anticipation of a tapering ‘pause’. The highest gain on Monday closing was 1.77 per cent in Japan’s Nikkei. The stock exchange is closed on Tuesday as the country celebrates a national holiday.

Taking a note from the meagre gains in US stocks, South Korea’s Kospi opened with a slight retreat from Monday’s rise. In China, the Hang Seng and Shanghai indices remained unchanged.

Sources: Agencies

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