Markets Welcome Solid Monetary Guidance

■ Yellen aids U.S. markets, USD, on assertive comments

■ Turing Pharmaceuticals' price scandal weighs down on biotech
■ Volkswagen (VLKAY) emission scandal weights on German Automakers and E.U. equity in general
■ DAX visits lowest since Dec 14'

On Thursday evening Fed governor Yellen delivered a lecture at the University of Massachusetts. After the Fed abstained from a rate hike on the week prior, markets gave extra attention to Yellen and her notes that hiking rates as early as this year is still on the table responding with a sizeable strengthening of the USD, seeing it add close to 0.6% vs. the Euro. As U.S equity markets were already closed, the reaction for equity was only seen the next morning with European equity kicking off Friday’s session at a very positive note, as the DAX added close to 2% on its opening. Benefiting also from the augmenting European momentum, U.S. markets opened the day deeply in the green territory, with the S&P 500 (SPY) starting Friday's session at close to a percentage point gain.

Markets are still very sensitive to bad news

While central banks re-gaining the ability to support markets can definitely be seen as a good thing, the weekly session has been far from rosy. The revealing of Volkswagen's emissions scandal, at the start of the week, unleashed growing negative sentiment in markets. The core was obviously Volkswagen itself, which dropped 16.5% on Monday, another 14.5% on Tuesday and a total of 28.1% during the week. But the negative effect further trickled to Euro automakers in general seeing BMW's stock lose 9% during the week, on reports that its emissions are also greater than those acceptable in Europe. Similarly, Daimler lost close to 10% during the week. The negative sentiment from ze German automakers further negatively affected the whole DAX index, which fell close to 5% between Monday and Wednesday. Visiting the level of 9362.28 points marked the lowest for the German index since December 2014. Similarly, the CAC 40 lost no less than 4.1% between Monday and Thursday. Speculation of an augmented Quantitative Easing in the Eurozone saw EUR/USD dip to as low as 1.1105 on Wednesday, its lowest in close to three weeks. Comments made by ECB President Mario Draghi, later that day, duly noted, gave no further indications that such a QE would actually be put in force by the ECB, which significantly aided in stopping the weakening of the Euro, and actually saw it strengthen somewhat.

Drug makers stocks' have been under some fire this week, following Turing Pharmaceuticals' announcement of hiking the price of Daraprim from USD 13.5 to 750, overnight, which led to speculation that the entire sector may soon suffer sticker regulation. After losing 5.5% on Monday and another 3.3% between Tuesday and Thursday, the S&P Biotechnology Index suffered a massive sell-off on Friday's session, seeing another 7% drop. At some point, this translated to wider losses in the U.S. leading index, leading it to erode pretty much all of the optimism supplied by Yellen, and end the day at a 0.05% loss.

On a weekly perspective, the bears have outweighed the bulls for the S&P500 seeing it lose 1.4%. The Dow (DIA) marks a smaller 0.4% decrease and the Nasdaq (QQQ) is down a heftier 2.9%. In Europe, Friday's optimism manages to have the index conclude with merely a 2.3% decrease, which is notably larger than the CAC 40's 1.2%. The FTSE 100, on the other hand, manages to score a 0.1% gain, though this achievement is less impressive considering that the GBP weakened by close to 1.5% vs. the EUR.