Markets Waiting On Trump But Cautious Optimism Pervades

Originally published by AxiTrader h2 Key Takeaway/h2

No big moves on a macro level overnight as markets, traders, and investors are waiting for president Trump’s address to the joint houses of the US Congress on Tuesday US time.

So stocks in the US are ever so slightly higher, Europe’s stocks were largely flat but slightly positive as they caught up with the Friday afternoon lift in US stocks to end the week. That meant they could ignore what had been a mildly negative day’s trade in Asia where Japanese stocks fell 0.9% and Chinese stocks lost around three-quarters of per cent. Australia’s 0.26% fall was more muted.

The US dollar is mixed, euro up, and the yen down while the Aussie traded between 0.7664 and 0.7707 over the past day and is back around 0.7683 this morning.

On commodity markets gold remains well supported but has been rejected on a test above the 200-day moving average, while oil and copper are both a little higher. Iron ore is also up.

US data, and anticipation of president Trump’s speech, saw US 10’s up a few points to 2.36%, German 10’s rose 1 point, but Italian, French and Spanish bonds rallied.

• S&P 500 +3 (0.1%) 2370 (7.23 am Sydney)
• Dow Jones Industrial Average +16(0.08%) 20,837
• Nasdaq 100 +10 (0.2%) 5,8456
• SPI 200 +5 (0.1%) 5,698
• AUD/USD 0.7675 +0.08%
• Gold $1253 -0.23%
• Oil $54.08 +0.27%

• President Trump’s big address naturally has attracted a lot of anticipation in markets. There is a strong chance that it could be the catalyst for the next leg higher for the US dollar, bonds, and stocks. But there is also room for disappointment. I say that because markets are waiting for more news about tax cuts, infrastructure spending and their timing. Expectations about these, and regulatory relief, have been key drivers of the more ebullient mood in US markets and the swing in business and consumer confidence.

• What’s interesting from a stock market point of view is that the S&P, Dow, and Nasdaq have remained strong and printed new record highs even as bonds rallied, the US dollar stalled, and gold rallied. Is that a warning for stock bulls? It could be. But we’ll only know that after the fact. For the moment though we wait for president Trump.

• Traders are likely to be focussed on the overall speech, its plan, and most important of all for stock prices, bond rates and the US dollar, the timing of any stimulatory measures for the economy.

• But I’m also still watching the overhead resistance in the S&P 500 which comes in around 20-30 points above the market. It’s an old trendline stretching back to the start of the 2011 rally and provided support many times between 2011 and 2015. My hypothesis – in a charting sense – is that what was support now becomes resistance. Here’s a long run chart from my Reuters Eikon so you can see that relationship.

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• A note on US stocks hit the wires from Investment bank Goldman Sachs (NYSE:GS) yesterday. The bank appears to have a similarly cautious outlook to me. The bank says the S&P will peak at 2400 this quarter and then end the year at 2300. Part of what’s going on is that Goldman believes there are near-term downside catalysts from a delay in the implementation of corporate tax cuts, multiple Fed hikes, and European elections.

• Looking at the data last night in the US we see durable goods were strong at 1.8% but ex-transport undershot expectations with a -0.2% print against the 0.5% the market forecast. Pending home sales were also lower with a fall of 2.8% against 0.8% expected. But the Dallas Fed manufacturing index for February printed 24.5, up from 22.1 last month.
  

• It’s a big week of Fed speakers with Friday a massive day as chair Yellen, and viv-chair Fischer are joined by 3 other officials out on the hustings. Last night though Dallas Fed president Robert Kaplan again said that the time is nigh to raise rates. He told a gathering of university students that even if the Fed raises rates “a few times” in 2017 monetary policy will still be in stimulatory territory.

• A new French presidential election poll was released overnight showing Emmanuel Macron should easily trounce Marine Le Pen in any second round run-of the two may face. That eased some market jitters.

• Warren Buffett has doubled his bet on Apple (NASDAQ:AAPL) this year reports overnight show. He also told CNBC he didn’t think US stocks were in bubble territory and would judge the president on how safe the US was in four years time.

• Data released last night showed Mexican non-oil factory exports fell in January by 5.8% which is the weakest outcome since October.

• Implied expectations of a Fed hike are rising. Between Friday’s close and now as I write the chances of a rate hike in March as gauged by the CME’s Fed Watch tool has risen by 9 percentage points to 35%. That’s still a long way from the 60/70% the Fed would like before it hikes. But they are moving the market in the right direction.