Janet Yellen returns

Financial and commodity markets analytics

Market Watch review.

In today's release, we’ll cover the following topics:

  • Janet Yellen announces aggressive incentives. 
  • ZEW economic sentiment.  
  • Bank of Australia decides on new incentives. 

Janet Yellen told lawmakers on Tuesday that "the smartest thing we can do is act big" on the next package of measures to fight the coronavirus, adding that the benefits outweigh the costs. Yellen says that there are risks of a longer and more painful recession in the US economy if Congress does not approve additional support measures. 

Quote: "...In the next few months, we will need additional support to distribute the vaccine, open schools, help states provide jobs for firefighters and teachers...."
This is the first and main message for the financial markets — large-scale incentives in the first half of this year.

Then Yellen spoke about China. She said China is undoubtedly America's most important strategic competitor. The United States must take action against Chinese hegemony and will use a full set of tools to combat China's unfair and illegal actions. 

These statements suggest that even under Joe Biden, trade wars with China may continue.

The German economic sentiment index (ZEW) rose to 61.8 points in January from 55 points in December. This growth reflects strong positive dynamics, which, in turn, speaks of the return of the key economy to the growth phase and an increase in export volumes at the beginning of this year.

According to the head of ZEW A. Wambach, “...despite the uncertainty about further restrictions, the economic outlook in Germany has improved slightly. The results of the January ZEW financial market survey show that, in particular, export expectations have increased significantly...".

The ZEW dynamics confirm the improvement in business sentiment in the leading European economy, as well as the previously published IFO and PMI Manufacturing indices.
According to the National Bank of Australia (NAB), the metaphorical shelf for three-year government bonds is almost empty. In other words, the Reserve Bank has bought back almost all of the available three-year government bonds and wants to buy back the rest during the first half of 2021: 

"$100 billion worth of purchases will occur over a period of approximately six months, with about $5 billion worth of weekly purchases, " the update said.

The obvious takeaway is that if the Reserve Bank no longer has three-year government bonds to buy by mid-2021, it will no longer be able to influence interest rates on deposits and mortgages. In the long term, this is very bad for the economy, but later, after the completion of the buyout programs in half a year. 

In the meantime, the Australian dollar continues to grow for two reasons: thanks to the statements of Janet Yellen about large-scale incentives and the expectation of the release of data from the labor market in Australia.

That’s all for me. Closely monitor the news background and be prepared for all the surprises of the market.
 


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