Investors are turning their attention to Mr Trump’s address to Congress later today. A lack of clarity surrounding his administration’s economic policies has slowed the market rally that began when he was elected US president in November. Notably, the ascent of the US dollar has slowed, while government bonds have recovered slightly from their initial sell-off.
US stocks inched to fresh record highs and the dollar put in a mixed performance at the start of a week packed with important risk events, including President Trump’s address to Congress later today and a number of scheduled speeches by Federal Reserve officials. Treasury prices gave back some of last week’s hefty gains, pushing yields higher, as participants continued to focus on the chances of the Federal Reserve raising interest rates next month. An early rally for gold melted away. French government bonds rose for the fourth day in a row, pushing the yield on the 10-year OAT to its lowest level for a month, as concerns about the country’s forthcoming presidential election continued to ease.
In New York, the S&P 500 equity index ended 0.1 per cent higher at a record close of 2,369, after earlier touching an all-time intraday peak of 2,371.54. The Dow Jones Industrial Average also edged 0.1 per cent higher to register a 12th successive record closing high, the longest such run for 30 years. Analysts said the initially hesitant tone in stock markets reflected the lack of clarity so far provided by the Trump administration on promised tax reform. “The market is growing impatient on the Trump tax plan and needs to see details,” said the FX strategy team at ING.
The fear is that failure to make progress on the House Border Tax Adjustment plan a key revenue raising measure will delay agreement on overall corporate tax reforms and push stimulus plans deep into 2018. “That is why President Trump’s address to Congress this evening is crucial for financial markets this week. The White House said on Monday that Mr Trump would give a glimpse of the proposed massive infrastructure-spending programme promised during his election campaign. It also said he was seeking to add $54bn to the Pentagon’s budget.
A busy schedule of Fed speakers this week will culminate on Friday with a speech by Janet Yellen, chair of the US central bank, to the Executives’ Club in Chicago. Historically this a forum where she will have plenty of leeway to offer strategically placed hints about the Fed’s bias regarding the March meeting. Stanley Fischer, Fed vice-chair, is also due to speak on Friday. “The March 15 Federal Open Market Committee meeting is a closer call in terms of potential action on rates than markets seem to have assumed recently,” said Anthony Karydakis, chief economic strategist at Miller Tabak. “If indeed the collective thinking of the Fed is seriously entertaining a move at the next meeting, we find plausible a situation where both Mr Fischer and Ms Yellen choose to offer a co-ordinated albeit non-committal message on Friday to better prepare markets for such a possible outcome.” Fed fund futures have moved to price in a 50 per cent chance of the Fed lifting rates in March, up from 40 per cent on Friday.
The euro found some support yesterday from the easing of French political worries, with the single currency up 0.3 per cent against the dollar at $1.0587. The dollar was up 0.5 per cent against the yen at ¥112.72, having earlier dipped to ¥111.93. Sterling came into focus as it briefly sank below $1.24 to a two-week low amid worries about the possibility of another vote about Scottish independence. The pound subsequently rallied back to $1.2440, down 0.2 per cent on the day. The Australian dollar was up 0.2 per cent overnight to $0.7687 against its US counterpart after data showed the country posted its narrowest current account deficit since 2001 in the December quarter. The figures helped quell concerns that GDP data due out on Wednesday could show the country fell into recession for the first time since 1991 during the December half.
EUR/USD opened in Asia at $1.0587 around midway of Monday’s range. We began the session on the back foot, falling to today’s low of $1.0570. The pair then found some support as the session wore on, rising to today’s high of $1.0598. The market has since eased off the highs as we approach the European open, trading at $. Resistance we look to Monday’s high of $1.0631 ahead of the February 16th high of $1.0679. Support we look to Monday’s low of $1.0552, while Thursday’s low of $1.0538 is also in focus.
Cable opened in Asia at $1.2442 around midway of Monday’s range. We began the session on the back foot, falling to today’s low of $1.2422. The pair then found some support as the session wore on, rising to today’s high of $1.2451. The market has slightly eased off the highs as we approach the European open, trading at $. From a technical view, our first support level is the February 15th low of $1.2383 followed by the February 7th low of $1.2347. Turning to the upside, Monday’s high of $1.2491 and Friday’s high of $1.2570 are in focus.
USD/JPY opened in Asia at ¥112.70 towards the upper end of Monday’s range. We began the session on the front foot, rising to today’s high of ¥112.82 following a mixed bag of data from Japan, industrial production fell for the first time in six months, down 0.8% (f/c +0.4%) m/m, y/y rose 3.2% (f/c +4.3%), while January’s retail sales rose 0.5% (f/c +0.3%) m/m and trade y/y was in line with forecasts at +1.0%. The pair then came under pressure as the session wore on, falling to today’s low of ¥112.42. The market has since eased slightly off the lows as we approach the European open, trading at ¥. Support we look to Monday’s low of ¥111.92 ahead of the 7th February’s low of ¥111.60. On the upside, Friday’s high of ¥112.95 may offer some resistance ahead of the February 21st high of ¥113.78.
GBP/EUR opened in Asia at €1.1754 towards the lower end of Monday’s range. We began the session on the front foot, rising to today’s high of €1.1757. The pair then came under pressure as the session wore on, falling to today’s low of €1.1738. The market has slightly eased off the lows as we approach the European open, trading at €. From a technical view, Monday’s low of €1.1710 may offer some support ahead of last Monday’s low at €1.1686. On the upside, Monday’s high of €1.1825 and Thursday’s high of €1.1874 are in focus.