Yellen’s Comments Wednesday will Drive Market Sentiment
Volatility in the equity markets has edged lower in Monday as a result of the People’s Bank of China easing the band on the Chinese Yuan, and the passing of a referendum vote by the Crimean people in Ukraine. These events will continue to keep volatility elevated, but later in the week, the Fed will meet and how Janet Yellen handles her first meeting as Fed Chair will likely drive volatility for the balance of the month. U.S. stocks rebounded with the S&P 500 index climbing nearly 1%.
After the Crimean people voted by nearly a 97% majority to rejoin Russia, both the US and the EU stated the referendum as illegal. Speaking to Russian President Putin, President Obama said the vote took place under duress of Russian military intervention, and no diplomatic solution was possible amid a large-scale Russian military exercises on Ukraine’s borders. A first round of sanctions could come as early as today, and EU leaders will meet to discuss their own sanctions.
Tensions with regard to Chinese economic growth were somewhat mitigated by the people’s bank of Chinese widening the band on its currency. China announced a doubling of the permissible band on its currency from 1.0% to 2.0% around the daily fix.
There had been some speculation that Chinese officials were moving in this direction. PBOC officials indicated that this was their intention sometime this year. The move saw the yuan weaken by 1%, and Chinese shares moved higher by 1%.
With the referendum in the rear view mirror, traders will now focus on Yellens press conference following the Feds meeting on Wednesday. Yellen will likely follow Bernanke’s roadmap and continue to taper the Fed’s bond purchase program, but the way she discusses future action will be the key to future movements of the equity markets.
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