Originally published by Rivkin Securities
The US dollar strengthened on Tuesday as Donald Trump began taking steps towards fulfilling campaign promises to roll back regulation. Taking action Trump signed two executive orders to proceed with the construction of the Keystone XL and Dakota Access oil pipelines while asking the Environmental Protection Agency to temporarily halt all contracts and interagency agreements in what has been referred to as a media blackout.
That boosted oil prices, particularly WTI crude which rose +0.63% while Brent crude only gained +0.18%. Commodities were generally higher, copper rose +2.27% as did iron ore, up +3.68% while natural gas was also boosted by colder weather forecasts for early February finishing +1.76% higher.
After a bumpy start in the first few days where Trump focused on protectionist measures, the markets reacted positively overnight with US equity benchmarks boosted to fresh all-time highs thanks to basic materials (+2.64%) and energy (+1.22%). Both the S&P 500 and Nasdaq 100 climbed +0.66% and +0.70% reaching new intra-day all-time highs while the Dow Jones makes another attempt towards that 20,000 level gaining +0.57%.
In Europe the pound weakened -0.22% following the UK Supreme Court’s decision that parliament must vote before PM Theresa May can formally trigger article 50. This is likely to be a straight forward bill that will be pushed through quickly, with MP’s having previously said they will not oppose such a bill. Nevertheless the Pound has benefited from the additional oversight and a degree of insight provided by Theresa May since outlining her Brexit strategy, up +4.45% since the January 16th lows shown on the chart below.
The euro also fell against the dollar, down -0.30% following flash PMI reports for the Euro-zone (MoM Jan) that slightly missed expectations. The composite reading dipped slightly from the December reading of 54.4 to 54.3 missing expectations of 54.3. However adding further evidence to the stabilisation witnessed throughout 2016 the report highlighted price pressures continue to build across the region and critically remained a comfortable margin above the 50 level which separates expansion from contraction. The ECB will continue to be pleased with the progress as they chase their elusive 2% inflation target although it is yet to be seen as to whether or not the recent uptick in momentum can be sustained.
Locally the Australian dollar was flat, up just +0.03% at the time of writing while the S&P/ASX 200 gained +0.70% on Tuesday. Today we can expect an extension of these gains with ASX SPI200 futures up +37 points in overnight trading. Critically today we will have CPI figures released at 11:30am AEDT, which will be the significant driver for the currency and market today. Expectations are for an increase to +1.6% from 1.3% (YoY 4Q).
Data releases:
· Australian Westpac Leading index (Mom Dec) 10:30am AEDT
· Japanese Trade Balance (MoM Dec) 10:50am AEDT
· Australian Consumer Prices (QoQ & YoY Q4) 11:30am AEDT
· German IFO Business Survey (MoM Jan) 8:00pm AEDT
· U.S. Crude Oil Inventories (Jan 20) 2:30am AEDT
Chart 1 - GBPUSD
