Comment: Yellen’s Testimony Welcomed By The Market/Eyes On BOE Inflation Report
February 12, 2014 6:52 am
WM Morrison’s owners have been on the ringer to private equity firms to see if any of them are interested in taking the food retailer private – reported names include CVC Capital and Carlyle Group – two of the most likely candidates. WM Morrison shares respond well to the reports by moving higher early Wednesday but it is worth noting that selling the food retailer comes with challenges. Morrison’s Xmas sales trading update was ugly, with earnings declining sharply and the group finding it difficult to compete in saturated food retail sector.
Morrison’s promotional activity failed to induce footfall and online sales were damp. And even though the group is expanding its convenient store chains, it’s late to the party with Tesco and Sainsbury’s being the major players in the convenient store market. Private equity firms will have a tough time finding long-term value in Morrison’s unless management can reassure them over strategy and back that up with a turnaround in operating and sales performance. Unlikely that PE firms could make an immediate move on Morrison’s just yet but it’s likely they have the food retailer on file now, waiting for improve in the group’s business activity before snapping it up.
Onto markets, Federal Reserve chairwoman Janet Yellen’s testimony to US Congress bolstered risk appetite for global markets Tuesday, helping US equities and the USD register gains. Yellen’s speech contained few surprises, reiterating the dovish stance of her predecessor Ben Bernanke by pledging to commit to low rates and no change to tapering of bond buying unless there’s a notable chance in the outlook for the US. For the Fed, that’s not the case at the moment as it continues to see the US recovery on track despite recent weakness in the labour market which Yellen attributes to poor weather and seasonal adjustments.
Interestingly, Yellen felt no need to adjust the unemployment rate threshold of 6.5% [the rate now at 6.6%] but instead suggested that this figure is not a trigger for monetary tightening – that was a slight surprise as many felt that Yellen would have to rehash that part of forward guidance. So in all, Yellen appears to be taking a measured approach, warming up investors that tapering is not on autopilot and the Fed could adjust the process if needed whilst also keeping an accommodative policy on interest rates.
Interestingly, Yellen commented on the turmoil in the EM world and doesn’t see a material impact on the US economy which may be the case, but that won’t stop the recent wipe-down of asset prices in the EM space as investors will see this as a sign that the Fed has little interest to provide assistance. Helping the risk tone further, US policymakers voted to raise the debt ceiling until March 2015 with relative ease compared to expectations at the start of the year of another game of political brinkmanship being played out. With the fiscal situation in the US under control and no-change to the status-quo at a dovish Fed, traders appear relatively sanguine over the US economy at the moment.
Going onto Asian markets overnight, Japanese equities led the rally, taking heart in Yellen’s comments which overshadowed data showing the country’s machine tool orders dropping by 16% as manufacturers in Japan cut back on spending ahead of the consumption tax hike in April. At her testimony, Yellen praised the work of the Bank of Japan over the last year, suggesting the Abenomics is paying off as Japan’s policies are gradually moving out of deflation territory which stands to benefit the global economy.
In other Asian markets, Chinese stocks put on a decent respectable show following a surprisingly strong piece of data; exports did better than expected in January, climbing 10.6% on the year versus expectations of 2%. Imports were also robust, gaining 10% versus estimates of 3% – in the face of poor data signals which indicate a slowing Chinese economy, the trade data out overnight helps to reassure worried investors that not all facets of the Chinese economy are stalling. As we kick off the European session Wednesday, financial markets here are responding to the encouraging data and events overnight whilst also preparing for the session ahead with two risk-events scheduled; the BOE’s Inflation Report and euro zone industrial production.
On the Inflation Report, markets are hoping BOE head revamps forward guidance to account for the stronger than expected recovery in the UK economy which many believe warrants a rate hike much earlier than the central bank pinned last year [BOE expects late 2016 whilst the market pricing in a rate hike mid to late-2015] as well as an adjustment to the threshold for the unemployment rate as the labour market in the UK continues to improve. Euro zone industrial production figures will also be in focus; expectations are for a bit of weakness given that industrial output in France, Germany and Italy all declined despite the broader pick-up in overall euro zone manufacturing activity.
WM Morrison’s owners have been on the ringer to private equity firms to see if any of them are interested in taking the food retailer private – reported names include CVC Capital and Carlyle Group – two of the most likely candidates. WM Morrison shares respond well to the reports by moving higher early Wednesday but it is worth noting that selling the food retailer comes with challenges. Morrison’s Xmas sales trading update was ugly, with earnings declining sharply and the group finding it difficult to compete in saturated food retail sector.
Morrison’s promotional activity failed to induce footfall and online sales were damp. And even though the group is expanding its convenient store chains, it’s late to the party with Tesco and Sainsbury’s being the major players in the convenient store market. Private equity firms will have a tough time finding long-term value in Morrison’s unless management can reassure them over strategy and back that up with a turnaround in operating and sales performance. Unlikely that PE firms could make an immediate move on Morrison’s just yet but it’s likely they have the food retailer on file now, waiting for improve in the group’s business activity before snapping it up.
Onto markets, Federal Reserve chairwoman Janet Yellen’s testimony to US Congress bolstered risk appetite for global markets Tuesday, helping US equities and the USD register gains. Yellen’s speech contained few surprises, reiterating the dovish stance of her predecessor Ben Bernanke by pledging to commit to low rates and no change to tapering of bond buying unless there’s a notable chance in the outlook for the US. For the Fed, that’s not the case at the moment as it continues to see the US recovery on track despite recent weakness in the labour market which Yellen attributes to poor weather and seasonal adjustments.
Interestingly, Yellen felt no need to adjust the unemployment rate threshold of 6.5% [the rate now at 6.6%] but instead suggested that this figure is not a trigger for monetary tightening – that was a slight surprise as many felt that Yellen would have to rehash that part of forward guidance. So in all, Yellen appears to be taking a measured approach, warming up investors that tapering is not on autopilot and the Fed could adjust the process if needed whilst also keeping an accommodative policy on interest rates.
Interestingly, Yellen commented on the turmoil in the EM world and doesn’t see a material impact on the US economy which may be the case, but that won’t stop the recent wipe-down of asset prices in the EM space as investors will see this as a sign that the Fed has little interest to provide assistance. Helping the risk tone further, US policymakers voted to raise the debt ceiling until March 2015 with relative ease compared to expectations at the start of the year of another game of political brinkmanship being played out. With the fiscal situation in the US under control and no-change to the status-quo at a dovish Fed, traders appear relatively sanguine over the US economy at the moment.
Going onto Asian markets overnight, Japanese equities led the rally, taking heart in Yellen’s comments which overshadowed data showing the country’s machine tool orders dropping by 16% as manufacturers in Japan cut back on spending ahead of the consumption tax hike in April. At her testimony, Yellen praised the work of the Bank of Japan over the last year, suggesting the Abenomics is paying off as Japan’s policies are gradually moving out of deflation territory which stands to benefit the global economy.
In other Asian markets, Chinese stocks put on a decent respectable show following a surprisingly strong piece of data; exports did better than expected in January, climbing 10.6% on the year versus expectations of 2%. Imports were also robust, gaining 10% versus estimates of 3% – in the face of poor data signals which indicate a slowing Chinese economy, the trade data out overnight helps to reassure worried investors that not all facets of the Chinese economy are stalling. As we kick off the European session Wednesday, financial markets here are responding to the encouraging data and events overnight whilst also preparing for the session ahead with two risk-events scheduled; the BOE’s Inflation Report and euro zone industrial production.
On the Inflation Report, markets are hoping BOE head revamps forward guidance to account for the stronger than expected recovery in the UK economy which many believe warrants a rate hike much earlier than the central bank pinned last year [BOE expects late 2016 whilst the market pricing in a rate hike mid to late-2015] as well as an adjustment to the threshold for the unemployment rate as the labour market in the UK continues to improve. Euro zone industrial production figures will also be in focus; expectations are for a bit of weakness given that industrial output in France, Germany and Italy all declined despite the broader pick-up in overall euro zone manufacturing activity.
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