It was twelve and out for the Dow last night as it finished slightly lower ahead of President Trump’s speech to Congress earlier today, while more hawkish interventions last night from Fed officials saw the prospect of an interest rate move in two weeks’ time rise even further to above a 50% probability.

The most notable intervention was from New York Fed chief Bill Dudley, who generally tends to align himself with Janet Yellen’s view on policy, and who generally tends to be viewed as “dove” on these matters, who stated that a Fed tightening has become “a lot more compelling” given recent data.

This hawkishness set the scene quite nicely for this morning’s speech to President Trump, as he set out his vision for the US economy. Having built up expectations to elevated levels over the past few weeks the President set himself an exceedingly high bar to deliver, which always suggested that it could struggle to live up to expectations, in terms of additional detail to what we already know.

Ultimately that is the key benchmark here, yes the speech was optimistic and Mr Trump did come across as more Presidential, however the speech merely confirmed a lot of the details that had been heavily trailed before. As to the key question as to whether it would come across as more or less bullish in terms of spending and rates there was still a significant lack of detail. This may be more to do with tempering expectations until he puts his final plans through Congress ahead of any debt ceiling negotiations. 

The speech merely confirmed the President’s aspirations with respect to infrastructure spending, up to $1trn, while there was little in the way of content about tax policy, though we had been forewarned about that given his comments about prioritising revamping Obamacare. There were no details about a border adjustment tax, though  he did reiterate his commitment to free and fair trade, as well as building the border wall with Mexico.

The beginning of a new month tends to herald a significant data dump from around the world as manufacturing reports come in thick and fast. We got a taster of what to expect yesterday when the latest Chicago PMI showed a big improvement in February to 57.4, with decent improvements seen in new orders, prices paid and the employment components, while Chinese PMI’s also improved in data released in Asia this morning.

Improving economic data and rising prices has been a consistent theme in the past few months across the globe, as rising commodity prices reflected an improvement in demand from the world’s second biggest economy, China.

This improvement has also been reflected in recent European data with little sign of a significant slowdown as we head into 2017, and this looks set to be confirmed later this morning when we get the latest February manufacturing PMI numbers from Spain, Italy, France and Germany.

Last week’s flash numbers from Germany and France were an early indication of an improvement in economic conditions as well as rising prices, with readings of 57 and 52.3 expected, with improvements also expected from Spain and Italy as well to 55.9 and 53.6 respectively.

German February CPI is also expected to show significant upward pressure, rising from 1.9% to 2.1%, which will in turn create further tension between German policymakers with respect to the ECB’s currently loose monetary policy.  

As far as the UK economy is concerned there does appear to be some evidence that the rise in inflationary pressure being seen across the world, which the fall in the pound is amplifying is starting to pinch off consumer demand.

The most recent January manufacturing PMI data pointed quite strongly to a rise in prices in the supply chain and today’s February manufacturing data is likely to paint a similar picture, though economic activity is still expected to remain strong at 55.7, slightly down from 55.9.

The latest lending data could well give clues to a slowdown on consumer credit, with data also due on mortgage approvals for January.

EURUSD – the euro continues to chop around despite last week’s new one month low at 1.0493.The bias still remains for a move lower towards the lows this year near 1.0340. We need to recover back through the 1.0680 area to retarget the highs at 1.0800

GBPUSD – while the support at the 1.2380 area holds the bias remains for a move back to the highs at 1.2580 last week. Only a move below 1.2380, and the 50 and 100 day MA retargets the 1.2250 area.

EURGBP – we could still head back to the 0.8570 area but while we remains below here the bias remains for further declines towards the December lows at 0.8300.  A move above 0.8600 retargets the 0.8700 area.

USDJPY – found support again this week just above the twin lows at 111.60. A move below 111.50 targets the 110.00 area. We need a pull back above 113.20 to retarget the range highs at 115.00.

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