European futures are trading slightly higher after better than expected Chinese manufacturing reading. Although the Chinese data was encouraging and must have played a good music for the Central bank, but the fact remains that we need to much stronger reading for this indicator on a consistent basis. Besides that, Janet Yellen’s testimony is still going to remain painted on trader’s dashboard.
The Federal reserve chairwomen delivered her verdict yesterday and she has certainly made clear that the Fed will take their time in raising the interest rate and assess the economy very carefully before they trigger this button. Although she was very optimistic about the outlook of the economy but at the same time she did not give any signal when the interest rates will rise. Basically, this was not such a good news if you are dollar bull trader and you were thinking that the Fed will deliver their testimony in your favour. Her testimony has pushed the stock market to another record high yesterday and the same momentum could very well continue in today’s trading session.
It was obvious from her speech yesterday that the Fed will remove the word “patient” first from the testimony and they will certainly prepare the market accordingly before they actually raise the interest rates and this could very well be in one of the meetings which is followed by a press conference. The Fed has acknowledged that lower oil price is a significant plus for the US economy and the GDP is robust enough to produce a lower rate of jobless data. Miss Yellen was feeling so open yesterday that she actually also mentioned her concern about the slow down in China and in the eurozone but stayed positive on the central bank’s commitments.
Therefore, what we believe that the Fed could drop the word patient from their speech this summer and we could see an increase in the interest rate during the early start of Q3.
Back in Europe, Greece has stayed in news pretty much yesterday again with many doubting that the same situation could continue within a couple of months if the country does not stay on its path of reforms. The news flow for Greece was pretty positive as the Euro group and the ECB both have approved their reform plan and the country has bought more time which is another four months to put its affairs in order. Therefore, the Greek government really need to address the reforms so the country could focus on its longer term views which can bring meaningful growth.