President Trump held court on Monday and decided to preempt his appearance before Congress on Tuesday and issue a form of forward guidance in relation to promising a: massive fiscal stimulus, tax cuts and a significant increase in military spending. The excess spending on the military (some $54b this year) will apparently come courtesy of reductions in other government spend, as Trump also suggested the ever expanding national debt needs to be addressed.
How that national debt problem can be solved, given the exponential cost of running the USA and his commitment to spend an extra trillion USD on infrastructure as soon as possible, remains to be seen. The dollar began a recovery in New York, after selling off overnight in the Asian session and during the European session as focus turned to the Fed decision on rates (due in two weeks), with the odds for a hike now rising from 34 percent just five days ago, to 50 percent on Monday.
In other economic calendar news emanating from the USA, once again there were mixed signals suggesting that the country’s economy may have peaked, however, the SPX rose modestly, whilst the DJIA (once again) printed a record high, the twelfth in series. Health insurance companies, military suppliers, and companies involved in supplying the aggregate materials for infrastructure building were amongst the key risers.
USA pending home sales surprised market analysts by coming in down -2.8% in the month of January, quite a miss given expectations of a 0.6% rise and the previous 0.8% rise in December.
USA durable goods orders rose (provisionally) by 1.8% in January, but durables excluding aircraft and defence fell sharply, all printing negative figures. Perhaps Trump’s promise of extra infrastructure and military spending has at its core an understanding that the USA economy has completely decoupled from the irrational exuberance demonstrated by the main USA indices, all closing up. The DJIA closed at 20,837, the SPX at 2,369 and the Nasdaq at 5,861.
European indices also rose moderately during Monday’s trading sessions. STOXX 50 rose by 0.6%, the CAC closed flat, DAX closed up 0.16% and the UK’s FTSE closed up 0.13%. Although regarded as low impact data, the majority of the various Eurozone confidence metrics beat expectations, the services and industrial confidence data being the stand out numbers, with industrial confidence for the Eurozone reaching 1.3, ahead of expectations of 1. The overall Eurozone confidence index on Monday showed sentiment rising to 108 from 107.9, a sixth straight increase and the highest level reached since 2011.
The Dollar Spot Index added 0.1%, reversing an earlier decline of 0.2%, having fallen by 0.4% last week, registering the first drop in over three weeks. GBP/USD weakened by circa 0.2% to end the day at $1.2438. EUR/USD rose by approximately 0.2% to $1.05828. Yen was the biggest faller throughout Monday’s trading sessions; USD/JPY ending the day at circa 112.745.
WTI oil crude settled at $53.64 a barrel, having earlier risen to breach the critical $54 handle. Gold gave up its earlier session gains after Trump’s speech, to trade 0.3% lower at $1,253 an ounce. The precious metal rose by approx 1.8% last week, its fourth weekly rise in series.
Economic calendar events on February 28th, all times quoted are London (GMT) time.
07:45, currency effected EUR. French Gross Domestic Product (YoY) (4Q) French GDP is forecast to remain static at 1.1%.
13:30, currency effected USD. Gross Domestic Product (annualised) (4Q). USA GDP is predicted to have risen to 2.1%, from the 1.9% recorded previously.
13:30, currency effected USD. Advance Goods Trade Balance (JAN). The USA runs a trade deficit, the prediction ps for a modest rise to -$66.0b, from -$65.0b in December.
14:00, currency effected USD. S&P/Case-Shiller Composite-20 (YoY) (DEC). Many analysts and investors look towards the Case-Shiller index as the definitive metric for USA house price rises. The prediction is for a slight rise to 5.4%, from 5.3% previously.
15:00, currency effected USD. Consumer Confidence (FEB). USA consumer confidence is expected to have fallen to 111, from 111.8 previously. Although with many confidence reports recently coming in ahead of analysts’ expectations, this report does have the capacity to shock.