Trump speech, hawkish Fed and big data drive US stocks to new all-time highs
March has come roaring in like a Lion with major indices breaking out to new all-time highs led by the Dow blasting through 21,000. Although valuations remain high, traders continue to pile in to the stocks. It feels like all the capital that had been piled up on the sidelines for so long continues to find its way back into stocks. The more aggressive sectors outperformed like financials, energy, materials, technology and industrials while defensive and interest rate sensitive sectors like utilities, real estate, staples and telecom underperformed and in some cases actually declined.
President Trump's speech to Congress was very well received by the markets. His tone was more positive and forward announcing plans for a trillion dollar infrastructure plan using public and private money, He also committed to increased defence spending, health care and tax reform and other initiatives. He kept the sabre rattling to a minimum and spoke positively about the points based immigration systems in Canada and Australia.
Having made so many big promises, the focus now shifts to getting all of these initiatives passed through Congress, funded and implemented. In other words, the real work starts now. In the coming days and weeks, the sorting process of figuring out what to spend where and when begins, and we'll start to figure out what can be done this year and what could get pushed off to future years. It remains to be seen how long traders' patience will last but for now the trend remains upward until it breaks.
The US Dollar also rallied on a combination of speech reaction and comments pointing toward a potential March rate hike from NY Fed President Dudley, one of the Big 3 FOMC members, and SF Fed President Williams. St Louis Fed President Bullard, meanwhile, talked about wanting to start running down the Fed's balance sheet. Fed funds are now pricing in an 84% change of a March rate hike, up from 50% a day earlier.
US economic reports were mixed Wednesday with a strong ISM manufacturing PMI report (especially the leading new orders component) offset by disappointing construction spending numbers. The Fed’s Beige book was generally positive with 10 of 12 districts reporting modest to moderate growth. Economic reports this week and next are likely to be viewed through the lens of whether they increase or decrease the chances of a March Fed rate hike.
Comments today from Fed Governor Brainard could also be of interest. She was particularly close to the Obama administration, so it will be interesting to see if she is still as dovish as she had been in the past or is ready to follow some of her former allies over to the neutral or hawkish side. It’s also questionable whether her opinions still carry as much weight with the street as they did before or if she is getting marginalized as the Fed turns more hawkish. Speeches from Fed Chair Yellen and Vice Chair Fischer Friday may attract particular attention.
CAD spent the day under pressure again, even though the Bank of Canada maintained its 0.50% benchmark interest rate as expected. The statement was neutral to dovish, indicating that the bank sees the recent increase in inflation as temporary, that the risks to exports remain and that Canada’s economy has more slack than the US with wage growth subdued north of the border. The bank maintained its neutral to dovish if needed stance. Canada may remain in focus tomorrow around national GDP reports.
In addition to potentially continuing to react to yesterday’s strong Australian GDP report and positive Australian and Chinese PMI reports, Asia Pacific traders may react to more Australian trade and building data today. In Europe tomorrow, Eurozone inflation and UK construction PMI figures may attract attention.
There have been no major announcements after the US close today.
Significant announcements released overnight include:
Canada BoC interest rate 0.50% no change as expected
US construction spending (1.0%) vs street 0.6% vs previous (0.2%)
US DOE crude oil inventories 1.5 mmbbls vs street 3.0 mmbbls
US DOE gasoline inventories (0.5 mmbbls) vs street (1.5 mmbbls)
UK BRC shop prices (1.0%) vs street (1.4%)
UK Nationwide house prices 4.5% vs street 4.1%
Germany unemployment chng (14K) vs street (10K) vs previous (26K)
Germany unemployment rate 5.9% unchanged as expected
Germany consumer prices street 2.1% vs previous 1.9%
Manufacturing PMI reports:
Canada 54.7 vs previous 53.5
US Markit 54.2 vs street 54.5
US ISM PMI 57.7 vs street 56.2
US ISM prices paid 68.0 as expected
US ISM new orders 65.1 vs previous 60.4
US ISM employment 54.2 vs previous 56.1
UK 54.6 vs street 55.8
Germany 56.8 vs street 57.0
France 52.2 vs street 52.3
Italy 55.0 vs street 53.5
Spain 54.8 vs street 55.8
Norway 52.6 vs street 51.7
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
6:00 pm EST FOMC Brainard speaking
11:30 am AEDT Australia trade balance street $3.5B
11:30 am AEDT Australia building approvals street (11.6%)
7:00 am GMT Norway retail sales street 1.4% vs previous (2.1%)
8:00 am GMT Spain GDP street 3.0%
8:00 am GMT Spain unemployment street 5K vs previous 57K
9:30 am GMT UK construction PMI street 52.0
10:00 am GMT Eurozone consumer prices street 2.0% vs previous 1.8%
10:00 am GMT Eurozone core CPI street 0.9%
10:00 am GMT Eurozone producer prices street 3.2% vs previous 1.6%
10:00 am GMT Eurozone unemployment rate street 9.6%
8:30 am EST Canada Dec GDP street 1.7%
8:30 am EST Canada Q4 GDP street 2.0% vs previous 3.5%
8:30 am EST US jobless claims street 245K
10:30 am EST US natural gas street (3 BCF) vs previous (89 BCF)