A Vote of Confidence in Yellen

Janet Yellen survived nearly 6 hours of grilling in her first Humphrey Hawkins testimony. Risk assets made strong gains with the Aussie on top and the yen lagged. Japanese machine orders are the top item on the upcoming agenda.

Yellen's testimony continued to emphasize that taper will continue unless the economy deviates significantly but, importantly, she navigated many challenging questions and the market gave her performance a vote of approval. The S&P 500 gained 1.1% and US dollar was broadly higher.

One thing that stood out was Yellen's lack of concern about disinflation. She pinned some of it on the falling cost of petroleum imports and was confident better growth would push inflation back to target. With unemployment close to 6.5% a dip in inflation was the best chance for a pause in the taper but Yellen's lack of concern means it's a very low percentage possibility.

We see the rally in risk assets as more of a continuation of the upbeat sentiment from late last week than a result of Yellen. We warned not to ignore the sideways moves yesterday because it was a positive signal that the market could hang onto gains after the risk rally. If there is no correction in the day ahead, the same holds.

The lone release to watch in Asia is the 2350 GMT release of December machine orders. The consensus is for a 4.0% m/m rise. A comment that is giving the yen some life in early trading came from BOJ member Kiuchi who said more easing could do more harm than good.

Other comments to look out for are late speeches from Fed-members Lacker (0000 GMT) and Fisher (0010 GMT).