Listen Carefully, She’s Yellen

After another soggy Asian session, European markets have begun on a firm note, and US shares are trading broadly higher in Europe as well.  Led by the beleaguered financial shares, and healthcare, the Dow Jones Stoxx 600 is up 2%. Similarly, the peripheral bonds, including Portugal (though not Greece) are seeing a reprieve from the recent selling.Spanish and Italian 10-year benchmark bonds are off 5-6 bp while the Portuguese yield is off 10 bp. The yield on JGBS, bunds, gilts and Treasuries are 2-5 bp firmer. 

The dollar is mixed. The dollar-bloc, sterling, and yen are firmerwhile the euro is a softer. Most emerging market currencies are firmer today.Oil prices have stabilized after yesterday’s fall, perhaps helped by reports that Iran may be prepared to cooperate with Saudi Arabia. We are skeptical, as Iran is still playing catch-up with the lifting of sanctions not even two months old. 

US Department of Energy inventory figures due later today are expected to show a three mln barrel build after last week’s report showing a nearly 7.8 mln barrel increase in stocks. US inventory build has been fairly steady if one removes the short-term noise. Over the past 26 weeks, the US crude inventories have risen by an average of 1.825 mln barrels a week (for a total of 47.45 mln barrels). Over the past 52 weeks, the inventory increase hasaveraged 1.724 mln barrels a week (for a total 89.65 mln barrels). 

The main focus today, outside of whether the capital market stabilize, is the Federal Reserve Chair’s semi-annual testimony to Congress. Yellen’s prepared remarks will be available at 8:30 ET and her testimony will begin at 10:00 am ET. She is wrestling with the conflicting forces as investors.As the Fed illustrated by not hiking rates last September, it takes financial market conditions serious when deciding on monetary policy.It may be more than officials at some other central banks like the ECB may do, but perhaps it is a function of the fact that capital markets themselves are more important and more developed in the US than in Europe.