Sentiment was weak in Europe once again as stocks declined through the day, their third straight daily decline as political jitters from France and Germany weigh on Eurozone sentiment. The Euro however was slightly firmer, the single currency enjoying some demand on a day that was otherwise data free for the European session, EURGBP popped to a one week high just below .8550 while EURUSD ran into sellers around 1.0630 and those levels now look like intraday resistance today. It was a mixed day for GBP, initially weaker following weekend news on Brexit and a potential Scottish referendum, sterling then recovered through the afternoon. The USD also traded lower on the day, Donald Trump was on the wires and his announcement of a “big” infrastructure statement (due today) and $54bln increase in defense spending boosted stocks but put the greenback under some selling pressure. He also mentioned a requirement to tackle Obamacare, before announcing any great tax changes so we may have to wait to hear more on this issue. Still, US stocks pressed higher and although looking heavy and sentiment feels strained, they appear to only want to go one way.
The one question no one appears to be asking, is how the Trump administration plans on funding all these grand plans. The US have a debt ceiling which is consistently moved, increasing national debt by the day. He plans to repeal Obamacare and replace it with something else (at great cost), build the US/Mexican wall at a cost of trillions if some quotes in this “fake news” environment are to be believed, increase huge infrastructure spending and now as of yesterday increase US defense spending by $54 bln (US defense spending is greater than the sum of the next 11 top spenders combined), all the while cutting taxes for US business and the lower/middle classes. Now it’s been many years since I’ve perused my economics text books but something in this mix does not add up, even with a boarder tax in place. All the while US stocks soar, and the mighty greenback ebbs and flows around rate hike sentiment, as markets try to assess if the US economy is in such a strong position that it can handle 3 further rate hikes. Something has to give somewhere here in my opinion, and its likely to be broader market positivity on Trumps plans, if he does not provide some concrete plans to markets.
From the economic standpoint, the US economy still appears to be improving, albeit at a mixed pace. Durable goods orders, often used as a barometer for consumer appetite and confidence, missed to the downside of expectations, declining -.2% vs .5% growth expected. Pending home sales also declined however the Dallas Fed manufacturing survey was firmer than expected. That being said, there is still hope for rate hikes in March if we are to believe the FOMC speakers who have been crossing the wires. Today will be huge for the Greenback, not only will Trump be announcing his infrastructure plans, he will also be addressing his first State of the Union, while on the data front Trade balance and GDP figures will be due across the wires throughout the afternoon, along with consumer confidence and several Fed speakers.
It’s also month end and rebalancing flows are expected, I’ve seen several reports suggesting that there will be USD supply coming into the major fixes of the day, with larger flows against EUR, GBP and AUD suggesting a weaker greenback on that front, which will need to be balanced with data flows.