Originally published by Rivkin Securities
The US Dollar Index strengthened on Thursday rising with US treasury yields on the back of comments from Donald Trump that in the coming two or three weeks he would release what he described as a “phenomenal” tax plan. The dollar index gained +0.33% with both two and ten-year treasury yields rising +2.8 and +4.9 basis points respectively. US equity markets rallied to new all-time highs as investors gained confidence having been waiting for further details on election promises including fiscal stimulus, tax cuts and deregulation. Both the S&P 500 and Nasdaq 100 gained +0.58% and +0.30% respectively with gains led higher by financials (+1.22%), energy (+0.95%) and consumer cyclicals (+0.82%).
The discussion around fiscal stimulus continued overnight with key Fed speakers touching on the topic. Federal Reserve Bank of St. Louis President James Bullard suggesting the FOMC should be patient when raising rates in 2017 given it is unlikely fiscal uncertainty would be resolved by March. Bullard is not a voting member of the FOMC in 2017. Elsewhere Chicago Fed president Charles Evans said that while there was uncertainty around the impacts of these policies, there is a “particular direction to it in terms of economic stimulus” referring to the positive impact. Evans who is a voting member in 2017 also noted that three hikes during the year was reasonable.
While the FOMC is likely to continue to err on the side of caution when it comes to raising rates, the March 15-16th meeting is still very much a live possibility despite futures markets pricing in an 8.9% probability of a hike. Between now and then data is released for both CPI and PCE inflation, the February non-farm payroll data as well as the second reading of Q4 2016 GDP. All of these data events have the ability to shifts market expectations for a rate hike. That would certainly not be a negative for markets, whether the FOMC hikes in March or June as the market is implying makes little difference with the underlying strength of the U.S. economy justifying modestly higher borrowing costs.
Oil prices extended Wednesdays gains overnight, both WTI and Brent crude oil trading +1.38% and +1.00% higher this morning. OPEC are due to report their monthly production figures on Monday which will be eagerly awaited as the market assess compliance around production cuts. Spot gold paused from its recent strength as the USD strength weighed on the precious metal, which traded -0.84% lower.
Locally the Australian dollar is -0.22% weaker against the greenback while the S&P/ASX 200 swung between gains and losses before closing +0.23% higher. This morning we look set to extend this gains with ASX SPI200 futures +24 points higher in overnight trading. The chart below shows the index which has held in at the key support zone between 5,600-5,500 while momentum indicators are crossing up from oversold levels. Taken together with futures higher this morning a close back above the 5,714 level would suggest corrective declines from January are complete and a move back towards initial resistance around 5,800.
Data releases:
· Australian Home Loans & Investing Lending (MoM Dec) 11:30am AEDT
· U.K. Trade Balance (MoM Dec) 8:30pm AEDT
· U.K. Industrial, Manufacturing & Construction Production (MoM & YoY Dec) 8:30pm AEDT
· U.S. University of Michigan Confidence Survey (MoM Feb) 2:00am AEDT
· U.S. Baker Hughes Rig Count (Feb 10)
Chart 1 – ASX200 Index
