Originally published by Rivkin Securities
Risk-off was the continuing theme overnight as investors lock in significant gains made over the past three months. The market is clearly beginning to doubt Donald Trump’s commitment towards business friendly policies with no progress and no details having been given on how he will achieve campaign promises of tax cuts, fiscal stimulus and deregulation. It remains likely that he will make progress on these policies into the latter half of 2017, however these types of policies require time, working with congress and are not as simple as signing an executive order.
Trump really should step up and provide further details on how he intends to achieve his economic policies, however for the moment, patience remains a virtue. In the meanwhile the supporting fundamentals of both the US and global economy continue improve, and therefore pullbacks in equity markets should continue to provide good buying opportunities as part of the longer-term trends.
The risk-off mentality was seen through the bidding higher of traditional safe haven assets on Tuesday, the yen +0.76% higher as was the Swiss franc +0.56% while the U.S. dollar index dropped -0.82%. Spot gold rose +1.30% however only gained +0.99% in Australian dollar terms given the Aussie traded +0.37% higher against the greenback. Government bond yields fell globally, the US 2 and 10 year yields down -1.2 and -3.5 basis points respectively, as did Australian yields down -2.5 and -1.3 basis points. Europe’s benchmark debt, German Bund yields also declined, falling -2.2 and -1 basis point.
In Europe the debate around whether should continue with the current quantitative easing program until December 2017 will continue to heat up. Overnight an advanced reading of Euro-zone GDP showed the economy expanded at +0.5% in the fourth quarter surpassing estimates of +0.4% while inflation jumped +1.8% from +1.1% previously, eclipsing estimates of +1.5%. While this is very close to the ECB’s 2% target, the effects are predominantly the result of the rebasing effect of oil prices which we have seen in headline inflation across the globe.
Core inflation remained stable at +0.9% as forecasts highlighting that there remains no sustained momentum in price gains and therefore the ECB will continue with stimulus measures until the end of 2017. The combination of a stabilising economy along with stimulus measures from the central bank will continue to provide a tailwind for European equities in 2017 despite expected volatility around key elections.
Locally the S&P/ASX 200 index finished -40.60 points (-0.72%) lower on Tuesday at 5.620.91. Meanwhile we can expect to recover some of these declines in early trade this morning with ASX SPI200 futures up +20 points in overnight trading.
Data releases:
· Chinese Manufacturing & Non-manufacturing PMI (MoM Jan) 12:00pm AEDT
· Australian RBA Commodity Index (YoY Jan) 4:30pm AEDT
· U.K. House Prices (MoM & YoY Jan) 6:00pm AEDT
· U.S. ISM Manufacturing Survey (MoM Jan) 2:00am AEDT
· U.S. FOMC Rate Decision 6:00am AEDT