Re-emergence Of A 'Presidential' Donald Trump Ignites Stocks

Originally published by AxiTrader h2 Key Takeaway/h2

Markets have voted again and it’s clear they liked the version of Donald Trump that they saw address yesterday’s joint sitting of the US Congress. Certainly there was little additional specitifity – the so-called meat on the bone – but the president’s tone echoed the one that ignited the initial Trumponomics rally during his acceptance speech on election night back in November. Traders and investors clearly like that version of Donald Trump.

So we have the Dow Jones Industrial Average up more than 300 points and above 21,000, the S&P 500 up 35 points and just below 2400, and the Nasdaq 100 is up almost 80 points at 5900. The FTSE 100 rallied sharply to close at a new record high, the DAX and CAC 40 closed either side of 2% higher and local traders have taken the SPI up more than 50 points overnight signalling a solid day’s trade for the local market.

I’ve heard the overnight stock's rally characterised as irrational exuberance already on the BBC this morning. Who knows. But price action is price action and as the rally from 2011 to 2015 showed it’s much easier to call a top than actually see one.

On other markets the residual effect of comments by Fed speakers Williams and Dudley yesterday morning have seen bond rates across the globe move higher and the odds of a March rate hike approach 70%.

That’s helped the US dollar but only really against the yen, Canadian dollar, and on the margin at the moment. Crowded traded?

On commodity markets gold is a little lower, copper a little higher as the Escondida strike turns violent, and oil is off a smidge. Base metals, steel, and iron ore as a block are all higher.

• S&P 500 +34 (1.45%) 2397 (7.49 am Sydney)
• Dow Jones Industrial Average +339 (01.63%) 21151
• Nasdaq 100 +78 (1.34%) 5,903
• SPI 200 +55 (1.0%) 5,738
• AUD/USD 0.7679 +0.27%
• Gold $1229 +0.03%
• WTI Oil $53.77 -0.44%

• Presidential Trump. That’s all it took for stocks to ignite once more. And it’s taken the S&P 500 right up to, and a little under the old support line which could become resistance. Because the chart dates back to the low in 2009 it’s difficult to pinpoint the exact level because even the tiniest miscalculation of the angle can – 8 years later – mean a difference of 10 or 20 index points. So lets say the resistance comes in around 2400.

• That’s the level Goldman Sachs (NYSE:GS) suggested earlier this week should pull the markets rally up. And it’s a level beyond most forecasters expectation of where the S&P 500 will end the year. It’s also a level that with the S&P 500 sitting just below many traders and investors will be shaking their head at given the president’s speech was long on rhetoric – positive though it was – and short on the detail markets were hoping for.

• But price action is price action. Here’s the latest update of the S&P weekly since 2009 from my Reuters Eikon terminal.

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• On the data front last night in the US construction spending fell 1%, but the ISM manufacturing beat expectations with a rise to 57.7 from 56.0. That’s the best reading since August 2014 and another sign the economy is doing relatively well. Equally the release of personal income data in the US which showed an increase of 0.4% was a solid sign. The PCE price index rose the most in four years up 0.4% last month taking the year on year rate up to 1.9% from 1.6% last. That’s positive but personal spending only rose 0.2% against expectations of a 0.3% increase.

• In terms of bonds, the US 2s and 10s are higher at 1.29% and 2.46% respectively. But that's not too bad - or stock rally threatening - all things considered. Indeed the 10's are still way below the recent high around 2.6%.

• But the odds of a Fed rate hike in March have been materially repriced since last Friday when they sat around 25%. The CME's FedWatch tool says the market is now pricing close to 70% of a Fed tightening this month.

• Also out this morning was the Fed's Beige Book. That's the briefing notes put together by Fed staffers from the 12 districts in preparation for the next FOMC meeting. It showed tightness in the labour market, some shortages in specific industries like IT, modest or moderate growth, but it lacked the kind of hard rhetoric we've been hearing from Fed speakers lately which is interesting.

• Over in Europe German inflation will be giving the Bundesbank – and perhaps some of the older population – chills. Data released last night showed that German consumer prices in the year to February rose 2.2% up from 1.9% previously. That’s the fastest pace of inflation since 2012.
  

• Also in Europe Francois Fillon is hanging on in the race for President even though he is now formally being investigated. That would appear to help Emmanuel Macron.

• And EU president jean-Claude Juncker put forward a white paper which looks at the future of the EU. That includes closer integration or a more lose coalition. But what he did say he is trying to do is make sure the EU project - if I can call it that - is not threatened by individual country popular political movements because what the EU has achieved - in terms of stability across the region - is too important.

• Yesterday China overhauled the way foreign bond investors are allowed to interact with onshore markets allowing them to hedge their holding via forex.