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Bounce in oil helps to steady equities - AM Briefing
30 Mar 2017
US stock indices consolidate - Video Update
29 Mar 2017
Risk appetite returns - AM Briefing
29 Mar 2017
S&P500 - Topping out, or consolidating? PM Bulletin
28 Mar 2017
Risk appetite returns after the Trump wobble - AM Briefing
28 Mar 2017
Beware hidden relationships between seemingly unrelated markets - Trading Guides
27 Mar 2017
Risk assets slump in wake of Trump’s healthcare debacle - AM Briefing
27 Mar 2017
Congress vote puts markets on hold - AM Briefing
24 Mar 2017
Markets on hold ahead of crucial vote - Video Update
23 Mar 2017
Tranquil markets await big data - AM Briefing
23 Mar 2017
Investors rattled after equity sell-off - Video Update
22 Mar 2017
US Markets Snap 109-Day Streak - AM Briefing
22 Mar 2017
Crude oil update - PM Bulletin
21 Mar 2017
European markets stable on the open - AM Briefing
21 Mar 2017
Dollar slips after G20 communique - AM Briefing
20 Mar 2017
FOMC post-mortem - Video Update
16 Mar 2017
Rate hike sends stocks higher - AM Briefing
16 Mar 2017
FOMC rate decision and Dutch election in focus - Video Update
15 Mar 2017
Oil rally gives markets lift - AM Briefing
15 Mar 2017
Crude trades at lowest levels since production cut agreement - PM Bulletin
14 Mar 2017
Politicians take centre stage again - AM Briefing
14 Mar 2017
Trading Psychology: Risk Management - Trading Guides
13 Mar 2017
Article 50 deadline approaches - AM Briefing
13 Mar 2017
European stocks push higher after Draghi’s hawkish stance - AM Bulletin
10 Mar 2017
Non-Farm Payroll look-ahead - PM Bulletin
09 Mar 2017
Fed rate hike seems certain - AM Briefing
09 Mar 2017
Market expects Fed to hike rates next week - Video Update
08 Mar 2017
Another twist in the French election - AM Briefing
08 Mar 2017
Odds slashed on Fed rate hike - PM Bulletin
07 Mar 2017
Investors lacking direction this morning - AM Briefing
07 Mar 2017
Fibonacci Retracement - extensions - Trading Guides
06 Mar 2017
Equities slip in early Monday trade - AM Briefing
06 Mar 2017
Modest profit-taking sees US indices post rare loss - AM Briefing
03 Mar 2017
Crude struggles to break above resistance - Video Update
02 Mar 2017
UK baffled by the origins of their favourite brands - PM Bulletin
02 Mar 2017
Fresh record highs for major indices - AM Briefing
02 Mar 2017
All eyes turn to the Fed - Video Update
01 Mar 2017
Markets react positively to Trump speech - AM Briefing
01 Mar 2017
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Trump the catalyst for equity surge

Investors sanguine over possible Fed hike

US stock indices surged yesterday to close out at fresh record highs. The moves followed Donald Trump’s speech to Congress which was regarded as his most conciliatory and unifying since his victory speech back in early November. It was also considered to be his most presidential as it was optimistic in tone, addressed the Trump administration’s plans for America’s future while there were no snipes at either the media or the previous presidency. The speech was light on detail, but investors felt that its tone should help the administration push much of their plans through Congress.

Now attention turns once again to the Fed and US monetary policy. Ahead of Trump’s speech William Dudley, New York Federal Reserve President and vice-chair of the FOMC, said that the case for tightening "has become a lot more compelling." Mr Dudley is considered to be one of the more dovish members of the FOMC and his comments led to a rapid recalculation of the odds on a rate hike at the next FOMC meeting in less than two weeks’ time. The CME’s FedWatch tool nearly doubled to 68% yesterday while the Bloomberg calculation of a 25 basis point rate hike this month is now around 80%. Since the financial crisis any prospect of higher rates has typically spooked equity markets. However, the situation is quite different these days. Equities are soaring as a rate rise now comes for all the right reasons. The US economy is improving, the Fed is seen as getting ahead of the curve (at least where inflation is concerned) and investors can now look forward to fiscal stimulus and a business-friendly Trump administration. What could possibly go wrong?

Stock Index Update

Equities soar following Trump speech

Investors unfazed by prospect of imminent Fed rate hike

European equities soared higher yesterday driven by big moves in the major US stock indices. The Dow Jones Industrial Average broke above 21,000 less than a month after cracking through the 20,000 level. The stock market surge followed on from Donald Trump’s speech to Congress. This was widely considered to be presidential and conciliatory, yet light on detail. Nevertheless, President Trump covered all the bases concerning fiscal stimulus when he promised a $1 trillion boost to infrastructure investment, tax reform for the middle classes and corporations, pledges to overhaul the immigration system and changes designed to improve jobs and wages for Americans. He also laid out some principles for an Obamacare replacement.

On top of this, the market recalculated the probability of a rate hike at the next meeting of the US Federal Reserve in a fortnight’s time. Ahead of Trump’s speech William Dudley, New York Federal Reserve President and vice-chair of the FOMC, said that the case for tightening "has become a lot more compelling." Mr Dudley is considered to be one of the more dovish members of the FOMC. His comments helped to trigger a rally in the dollar as the probability of a Fed rate hike later this month effectively doubled overnight. The CME’s FedWatch tool now has this at 68% while Bloomberg calculates that it is nearer 80%. Since the financial crisis, any prospect of higher rates has typically spooked equity markets. However, the situation is quite different these days. Equities are soaring as a rate rise now comes for all the right reasons. The US economy is improving, the Fed is seen as getting ahead of the curve (at least where inflation is concerned) and investors can now look forward to fiscal stimulus and a business-friendly Trump administration.

Commodities Update

WTI and Brent react to inventory data

Gold falls as dollar rallies

Crude oil fell sharply yesterday afternoon following the release of the latest US inventory data from the Energy Information Administration (EIA). This showed a build in crude of 1.5 million barrels which was as expected. Nevertheless, prices fell as this increase marked the eighth consecutive week-on-week build and took crude inventories to a fresh record high. However, it wasn’t long before traders stepped back in and pushed prices up to register modest gains.

Earlier in the day WTI and Brent had crept higher. This followed a report from Reuters which confirmed that OPEC production cut compliance had risen to 94% in February. This was up from 82% in January, or 90% if one considers OPEC’s own report. After Tuesday’s close the American Petroleum Institute (API) reported a crude build of 2.5 million barrels, just a touch below the 3 million expected. But gasoline stockpiles rose by 1.84 million barrels which was well above the expected drawdown of 1.5 million barrels.

Gold fell sharply yesterday as the dollar rallied on expectations that the US Federal Reserve could hike rates at this month’s FOMC meeting. This was a sudden recalibration of the odds on a March hike which saw the probability double overnight. This followed comments from FOMC vice-chair William Dudley who said that the case for tightening monetary policy had become "a lot more compelling” since the November election. Investors are now waiting for speeches from Fed Chair Janet Yellen and vice-chair Stanley Fischer in the hope of further clarification.

Gold also came under pressure as investors closed out long positions taken as hedges ahead of Trump’s speech to Congress. The speech was widely seen as being presidential and conciliatory. Mr Trump held back from attacking the media or criticising his predecessor in the White House. Instead he repeated his plans to boost economic growth through a combination of tax reforms, infrastructure spending and regulatory reform. The speech was light on detail, although it was generally considered inclusive, unless you happened to be in the US illegally or hoping to migrate there.

Forex Update

Dollar rallies as odds slashed on March hike prospects

FOMC vice-chair Bill Dudley turns hawkish

There were a number of noteworthy moves in FX yesterday. But the main event was the sudden pick-up in the US dollar which made solid gains against all the majors. The reason for this was a abrupt reassessment of the likelihood of a rate hike at the Fed meeting later this month. This followed comments from a number of voting members of the FOMC indicating that there were solid reasons for raising rates in the near-future. On Tuesday evening Bill Dudley, vice-chair of the FOMC and noted dove, said that the case for monetary tightening "has become a lot more compelling" since the November election result. This was a direct reference to President Trump’s promises of fiscal stimulus in the shape of tax reform, infrastructure spending and regulatory roll-back. Mr Dudley’s comments confirmed what many other FOMC members had said earlier in the week and the probability of a hike doubled overnight. This saw the Dollar Index trade up to its highest level since January 11th. This was when the greenback fell sharply after President Trump’s pugnacious press conference straight after rumours surfaced that Russia held a compromising dossier related to Trump.

Also yesterday, the Japanese yen and Swiss franc fell sharply as traders rushed to unwind hedges put on ahead of Trump’s speech to Congress. Moves in both these currencies were then exacerbated as risk appetite increased.

Upcoming events

Today’s significant economic data releases and events include German Import Prices, Spanish Unemployment, Italian Unemployment, Swiss Retail Sales and UK Construction PMI. We also have Euro zone CPI, PPI and Unemployment along with US Weekly Jobless Claims.

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

Tagged: AM Bulletin

Category: AM Bulletin


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