Originally published by Rivkin Securities
Another day, another new all-time high for US equity markets with the S&P 500 market capitalisation topping US$20 trillion overnight. The benchmark index gained +0.52% shown on the chart below led by financials (+1.02%) and industrials (+0.97%) with broad buying support as 368 of the index constituents closed higher for the session. With limited data released overnight, much of this move is attributed to Donald Trump as the market listens intently to his every word.
Meeting with Canadian Prime Minister Justin Trudeau overnight where he adopted a friendlier tone than some of his recent “America First” rhetoric. Still he said the United States would be “tweaking” the trading relationship with Canada, referring to his campaign pledge to renegotiate the NAFTA agreement. This meeting also follows on from a positive meeting with Japanese Prime Minister Shinzo Abe over the weekend and it seems the lack of sabre rattling by Trump is spurring investor confidence.
The US dollar was a beneficiary of this, rising +0.19% against a basket of currencies with US treasury yields rising in tandem, both the two & ten-year yields +1 & +2.7 basis points higher respectively. Tonight the market will turn its attention to a two day testimony by Fed Chair Janet Yellen for any clues as to whether the Fed is leaning towards March or June for the first rate hike of 2017. The implied probability from Fed Fund futures suggests June is the more likely, at 46.8% with the probability for March trailing at 17.7%.
As policy makers continue to assess the what, when and where of Trump’s proposed policies on tax reform, deregulation and fiscal stimulus it still makes sense to err on the side of caution although I heavily suspect this will be intensely debated within the FOMC. Between now as the March 15th meeting we will have US CPI & PCE inflation data, the February non-farm payrolls as well as a 2nd estimate of Q4 2016 GDP, all of which have the ability to tilt the balance for either March or June.
Locally the S&P/ASX 200 is extending Monday’s gains, up +0.49% in early trade. Basic materials are leading the charge, up +1.16% on the back of higher iron ore prices overnight with the bulk commodity up +4.9%. Financials are also a strong performer this morning, up +0.70% following the positive led from Wall St overnight in line with the bond yields.
Data releases:
· Chinese CPI & PPI (YoY Jan) 12:30pm AEDT
· Japanese Industrial production (MoM & YoY Dec) 3:30pm AEDT
· German GDP (QoQ & YoY) 6:00pm AEDT
· German CPI (MoM & YoY) 6:00pm AEDT
· U.K. CPI & PPI (MoM & YoY Jan) 8:30pm AEDT
· Euro-zone GDP (QoQ & YoY) 9:00pm AEDT
· U.S. Producer Price Index (MOM & YoY Jan) 12:30pm AEDT
Chart 1 - S&P500 Index
Source: Rivkin, RivkinTrader