In his first address to both Houses of Congress, President Trump’s much anticipated speech covered plenty of rhetoric but offered little in way of details as to how he will achieve his goals. Overall the tone was deemed softer, casting aside the aggressive and conflictive start to his administration. He touched upon several of his key topics such as repealing Obamacare, an immigration crackdown, increase in defence spending and a $1bn infrastructure plan. The speech was deemed to have been delivered in a calm and collective manner, certainly something we haven’t seen much of lately.
From a market perspective, equity bulls found little cause for concern despite the lack of detail and again the speech contained no major surprises or shocks. Despite the likes of the DJIA and NASDAQ closing beforehand in the red yesterday, the subsequent speech has been well received by the markets with Asian equities closing higher and the sentiment following through into early European trading with the German DAX up over 1% at time of writing along with the FTSE100 up 0.50%. Futures in US equities suggest a similar response there later today.
From a FX and a general market perspective, the main developing story is the rising probability of a rate hike by the US Fed in March. Markets are now pricing the chances of such a hike as high as 80%, from around 30% only last week. As a result and as we would expect, the dollar opens stronger this morning too. EURUSD has traded down as low as 1.0528 putting support lines of 1.0452 and recent lows of 1.0348 firmly on the radar. GBPUSD also moved lower in line, hitting lows of 1.2353.
We are now well and truly on Fed watch with comments from two members yesterday also worth mentioning. Federal Reserve Bank of New York President William Dudley said the “case for tightening has become a lot more compelling”, stating that the economy is now at “full employment”. Federal Bank of San Francisco President John Williams said he expects a rate increase to receive “serious consideration” at this month’s meeting.
Looking ahead we will continue to closely monitor US economic data and further comments from Fed members, as to clues on whether a March hike is a real possibility. Today will be another important one for us to monitor with a series of key data such as the Personal Consumption Expenditure at lunchtime followed by ISM Manufacturing data. Then later tonight we have the release of the Fed’s latest Beige Book coupled with speeches by the Fed member Kaplan and Brainard. All of which will lead up nicely to Friday’s schedule speeches by both the Vice Chair Fischer and the Chair Yellen.