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Market awaits Trump, and Fed reaction
28 Feb 2017
Markets on hold ahead of Trump speech to Congress - AM Briefing
28 Feb 2017
Fibonacci Retracement - an introduction - Trading Guides
27 Feb 2017
Investors shrug off concerns ahead of Trump speech - AM Briefing
27 Feb 2017
Equities drifting lower ahead of weekend - AM Briefing
24 Feb 2017
Dollar sells off after FOMC minutes - Video Update
23 Feb 2017
FOMC minutes send dollar lower - AM Briefing
23 Feb 2017
Crude oil pushes up against resistance - Video Update
22 Feb 2017
FOMC minutes in focus - AM Briefing
22 Feb 2017
Gold pulls back from resistance - PM Bulletin
21 Feb 2017
US traders return after market holiday - AM Briefing
21 Feb 2017
Identifying market tops, or the trend is your friend - until it isn’t
20 Feb 2017
Kraft Heinz pulls Unilever bid - AM Briefing
20 Feb 2017
Major indices drifting lower as weekend approaches - AM Briefing
17 Feb 2017
US Indices hit fresh record highs
16 Feb 2017
Trump tax promise continues to drive risk appetite - AM Bulletin
16 Feb 2017
Yellen testifies in Washington
15 Feb 2017
Yellen testimony helps lift sentiment - AM Bulletin
15 Feb 2017
Silver hovers around resistance at $18
14 Feb 2017
Focus turns to Yellen’s testimony in Washington
14 Feb 2017
An introduction to the Relative Strength Index - Trading Guides
13 Feb 2017
Equity rally continues - AM Briefing
13 Feb 2017
Trump tax talk boosts risk appetite - AM Briefing
10 Feb 2017
US dollar drivers - Video Update
09 Feb 2017
Recovery in crude lifts equities AM Briefing
09 Feb 2017
Crude volatility picking up - Video Update
08 Feb 2017
Crude lower as inventories soar - AM Briefing
08 Feb 2017
Politics set to drive FX - PM Bulletin
07 Feb 2017
Major indices drift in featureless trade - AM Briefing
07 Feb 2017
MACD - an overview -Trading Guide
06 Feb 2017
European equities drift in quiet trade - AM Briefing
06 Feb 2017
Non-Farm Payrolls in focus - AM Briefing
03 Feb 2017
Non-Farm Payroll look-ahead - Video Update
02 Feb 2017
BoE meeting in focus - AM Briefing
02 Feb 2017
FOMC meeting tonight - Video Update
01 Feb 2017
Markets steady ahead of Fed meeting - AM Briefing
01 Feb 2017
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 Tuesday 28 February 2017

Market awaits Trump, and Fed reaction

 

 

The biggest issue for investors right now is President Trump’s highly anticipated speech to both houses of Congress in the early hours of Wednesday morning (02:00 GMT). This is viewed as crucially important and is expected to focus on Trump’s plans for tax reform, deregulation, infrastructure spending, health care reform, border security and labour issues. White House spokesman Sean Spicer said that the theme would be “the renewal of the American spirit.”

Just yesterday Mr Trump announced an increase of $54 billion in defence spending to be offset by cuts to federal agencies and other non-defence sectors of government. Many investors saw this as the opening salvo of an administration determined to follow through on its promises of fiscal stimulus to help “make America great again.” Yet while investors still appear ready to buy into the rhetoric, Trump really needs to deliver now. It can only be hoped that the president will provide some clarity when he delivers his speech, as opposed to the bombast and press attacks we’ve been subject to recently.

As far as the Federal Reserve is concerned, members of the FOMC have claimed that uncertainty over the outlook for fiscal stimulus is making the US central bank’s job more difficult. Fed members have been trying (half-heartedly) to convince investors that every meeting is “live” when it comes to the possibility of a rate hike. However, the market isn’t buying it. This can be seen primarily in the behaviour of the US dollar which has traded in a narrow range since mid-February. This lack of conviction comes partly from the Fed which seems only to be paying lip service to the prospect of imminent tightening. Yet the Fed won’t want to repeat the embarrassment from December 2015 when they predicted 100 basis-points worth of tightening but only managed 25. This time round they need to come a bit closer to their prediction at the end of last year of 75 basis points worth of hikes. But if they hold off from hiking in March, they do reduce their options.

Yesterday Dallas Federal Reserve President Robert Kaplan clarified a comment he made recently on the timing of the next hike saying, "sooner rather than later means in the near future."  The probability that the Fed would raise rates in March jumped higher after his comment. Yet there still appears to be some reluctance from Fed members to consider tightening in the “near future.” Last week FOMC-voting member Neel Kashkari managed to dampen rate hike expectations by saying he thought there was still plenty of slack in the labour market. But in terms of the Fed’s targets for unemployment and inflation, which form the Fed’s dual mandate, it’s pretty clear that the main employment target has been reached with the Unemployment Rate coming in below 5% for nine consecutive months now. At the same time, inflation as measured by CPI is above the Fed’s 2% target, although Core PCE (its preferred measure) is holding around 1.7% annualised. Yet wage inflation is proving sticky, suggesting that there may be some merit in Kashkari’s reluctance to tighten immediately. Nevertheless, there are plenty of analysts who believe that the Fed is already “behind the curve” when it comes to tightening monetary policy - and that’s without the prospect of a large dose of fiscal stimulus from Trump.

Tomorrow we have speeches from two FOMC-voting members Robert Kaplan and Lael Brainard. But it seems unlikely that either will be in a position to give us much additional insight into the Fed’s thinking. However, we could get something more concrete on Friday when Fed Chair Janet Yellen and Vice-Chair Stanley Fischer give separate speeches. These two, along with New York Federal Reserve President William Dudley are really the only ones worth paying attention to. So while we will still have to wait for the latest Non-Farm Payroll data on 10th March, events this week could set us up for the next significant market move.

Disclaimer:

Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Category: PM Bulletin


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