MORNING ROLL CALL
Trump’s promise of “phenomenal tax cuts” propels USA equity markets to new highs, whilst the dollar and sterling both rise versus the euro
As we noted last week there’s a new analysis paradigm currently at work in the equity and currency markets, it’s called the “Trump effect”. In USA election years it’s customary for markets to rise on the basis of optimism, generally that optimism moderates in the new year, once the incumbent president has his feet under the desk at the Oval Office, however, this time it’s different.
We’d mentioned the power of Trump’s tweets and his off the cuff remarks to move markets, such as promises of “phenomenal tax cuts” which has caused financial stocks to rally. Goldman Sachs stock is up circa 35% since mid November, that’s a stunning $35 billion increase in market capitalisation in less than three months. As to where this secular Trump rally will end is anyone’s guess, predictions of the DJIA reaching 20,400 would have been laughed at this time last year with the index at 16,000 and yet here we are.
The main equity indices in the USA reached record highs on Monday, the DJIA closing at 20,412, SPX at 2,328 and the Nasdaq at 5,763. European markets also rallied, beginning to rise sharply in the European morning session, on the strength of the futures prices from the USA; the UK’s FTSE 100 closed at 7,278, DAX at 11,774, with France’s CAC up 1.24% at 4,888.
Looking at the economic calendar news events on Monday, there was little in the way of dynamite to propel European markets to recent highs. In fact the European Commission publication printed a rather gloomy assessment of the UK’s performance over the coming two years, suggesting that GDP would come in at circa 1.5% in 2017, lower than the BoE’s projection of 2%. Also British consumer spending appears to have suffered a cardiac arrest, according to payment service provider Visa.
This snapshot of muted UK activity was also echoed by the Confederation of British Industry, who stated that retail performance had not only slumped to post financial crisis/recession lows, but voiced that it’s January retail gauge fell by the largest metric since its records began in 1983. This bearish news, failed to stop sterling rising versus the majority of its peers, or the UK’s main indices approaching record highs.
Traders are now pricing in a 32% chance that the Fed will raise rates at its March 15th meeting, this undoubtedly helped the dollar rise versus the majority of its peers. Whilst the euro fell versus its peers due to Greek crisis fears once again materialising, in tandem with French election concerns. The Dollar Index rose by 0.2% on Monday after last week’s 0.7% advance. USD/JPY rose by circa 0.5% to 113.75 per dollar, EUR/USD weakened by approx. 0.3% to $1.0594. GBP/USD closed the day up at circa 1.2525, whilst the euro slumped versus sterling; EUR/GBP finishing the day close to 0.8457.
WTI reversed a three day rise to experience the largest fall in three weeks, as a consequence of OPEC’s production cuts stimulating a recovery in U.S.A. oil production; once crude approaches circa $50 a barrel many USA offshore rigs become financially viable. WTI fell by approx 1.8% to settle at $52.80 a barrel.
Economic calendar events for February 14th, all times quoted are London (GMT) times
07:00, currency effected EUR. German Gross Domestic Product (YoY). The prediction is that Germany’s GDP will have risen to 1.8%, from 1.7% previously. This data proceeds confusing signals from Germany’s economy last week, when certain production and import/export metrics missed estimates by some margin.
09:30, currency effected GBP. Consumer Price Index (YoY). The prediction is for the UK’s key inflation figure to have risen to 1.9%, from 1.6% previously. This data release will be closely scrutinised given the ongoing Brexit issue, bearing in mind that inflation in the UK was circa 0.5% this time last year.
09:30, currency effected GBP. Retail Price Index Ex Mort Int.Payments (YoY). Although not necessarily a high impact news event, retail price inflation is creeping up in the UK. The forecast is a rise to 3.1%, from 2.7% previously. Wage rises are at approx 2.2% in the UK, therefore with retrial prices at 3.1%, a tipping point of sorts may be in reach, which is why consumer spending in the UK may have already begun to ease.
10:00, currency effected EUR. German ZEW Survey (Economic Sentiment) (FEB). As always the ZEW survey should be monitored carefully for any significant reading away from last month’s print of 16.6.
15:00, currency effected USD. Fed’s Yellen Appears Before Senate Banking Panel. This is Mrs Yellen’s first semi-annual appearance under the Trump administration. Analysts and investors will be looking for forward guidance clues, in relation to interest rate rises and any news on the fiscal stimulus the new government administration has committed to.
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