Originally published by Rivkin Securities
US treasury yields jumped on Tuesday following hawkish comments from two Federal Reserve Presidents. Thetwo-year yield rose +6.8 basis points to +1.272% and the ten-year also gained +2.8 basis points to +2.3935% as Federal Reserve of San Francisco President John Williams stated “a rate increase is very much on the table for serious consideration at our March meeting”. While Williams is not a voting member of the committee in 2017 Philadelphia President Patrick Harker is. Overnight Harker reiterated that he saw “three hikes as appropriate in 2017”, Harker has typically leaned more towards the hawkish side of monetary policy preferring to raise rates.
Despite the rise in yields the US dollar was flat, up just +0.01%. The biggest gains for the dollar came against the British pound (+0.38%) and Australian dollar (+0.25%) while posting modest gains against the euro (+0.09%) and yen (+0.02%). Equity markets were mixed, Europe was higher led by gains in the Euro Stoxx 600 (+0.19%) and DAX (+0.10%) while US equities saw some profit taking with both the S&P500 and Nasdaq 100 closing -0.26% and -0.32% lower
The second estimate of fourth quarter GDP for 2016 in the US was also released with the Bureau of Economic Analysis data showing the annual rate of economic growth remained unchanged at +1.9% missing forecasts for a rise to +1.9%. Details showed the US consumer, which the key driver of the economy, remains strong is increasing to a rate of 3.0% from + 2.5% previously. Elsewhere a consumer confidence survey also rose to the highest levels since 2001 with the Conference Board reading increasing to 114.8 from 111.8 previously.
While the US GDP figure was slightly disappointing looking ahead it may be irrelevant. The key still remains Donald Trump’s planned policies for fiscal stimulus, tax cuts and deregulation. The market has so far remained patient with little actual details of these policies revealed other than the promise they will “be great”. While it is highly likely that today we will hear details of these policies, in the near-term the biggest threat to new all-time highs for equity markets is failure to provide further details on these policies. The inverse is also true, should a clear time line and details of these policies be outlined equity markets should rally on investor optimism. Trump will appear before congress to address the assembly around 1pm Sydney time. Still regardless of Trump's ability to deliver on these promises the outlook for US equities remains bullish with positive earnings momentum, high levels of consumer sentiment, an uptick in business spending, rising wage growth, a healthy labour market and firming inflation.
Locally the S&P/ASX 200 finished -0.21% lower and we can expect a slightly weaker start to trading this morning with ASX SPI200 futures down 6 points in overnight trading. Today we will also have GDP figures released at 11:30am Sydney time with expectations for a rebound of +0.7% for the quarter following a -0.5% decline in the third quarter of 2016.
Data releases:
· Fed’s Bullard Speaks 10:50am AEDT
· Japanese Capital Spending (QoQ Q4) 10:50am AEDT
· Australian GDP (QoQ & YoY Q4) 11:30am AEDT
· Japanese Nikkei Manufacturing PMI (MoM Feb) 11:30am AEDT
· Chinese Manufacturing & Non-manufacturing PMI (MoM Feb) 12:00pm AEDT
· Chinese Caixin Manufactuirng PMI (MoM Feb) 12:45pm AEDT
· Trump Addresses Joint Congress 1:00pm AEDT
· German Unemployment (MoM Feb) 7:55pm AEDT
· US PCE Inflation (MoM & YoY Jan) 12:30am AEDT
· US ISM Manufacturing Survey (MoM Feb) 2:00am AEDT