With traders focused on President Trump’s address to Congress tonight where he is expected to outline his economic priorities and provide plan details, European stocks are little changed for a second day and Asian stocks decline modestly as U.S. futures trade around the flatline. Oil declines, trading just under $54, while the dollar is little changed. Before the open, the US reports the second reading of 4Q GDP, with attention also on the Chicago PMI print as well as the Conference Board consumer confidence index. Salesforce and Ross Stores are among companies reporting.
World stocks hover just shy of all-time highs and are on course for a fourth straight month of gains on Tuesday, as investors awaited a speech by U.S. President Donald Trump for signals on infrastructure spending and tax cuts. Global share markets have risen more than 10 percent since Trump won power in November and investors are hoping a speech to U.S. Congress later will detail his “big” spending promises.
Traders are in a holding pattern ahead of Trump’s State of the Union address before a joint session of Congress. It actually is technically called the State of the Union as it’s his first address but it’s the annual event that will become it. Yesterday’s headlines were largely dominated by reports of Trump proposing to boost military spending by $54bn, offset by cuts in nonmilitary budgets. The President was also reported as telling governors yesterday that “we’re going to start spending on infrastructure, big†but in reality markets were largely unmoved by the headlines and clearly just waiting for the main event.
As DB’s Jim reid writes, perhaps the biggest focus for the market in the address are clues as to whether the President supports the much talked about border adjustment tax – a key feature of House Speaker Ryan’s tax reform plan. Economists believe that the President will not directly mention the BAT but will highlight the necessity of increasing economic growth and work wages. Other topics which could be addressed include repealing of the Affordable Care Act, pulling out of trade agreements, immigration, de-regulation and of course other tax cuts. In terms of timing the address is scheduled for 9pm EST in the US tonight.
Ahead of Trump, asian markets were subdued overnight but some upbeat company earnings helped European stocks add 0.1 percent as the region looked to pull out of a three-day lull and extend a 2.5-percent gain this month. The Stoxx Europe 600 Index was little changed by 10:08 a.m. in London, after four straight days of losses. The index is still up 2.6 percent for February. Asia stocks erased gains after Japan’s Topix gave up almost all of a 1 percent rise, with the steepest paring coming in the final half hour of trading. The MSCI Asia Pacific Index trimmed its monthly gain to 2.2 percent.
In the currency markets, the dollar which has not taken to the Trump trade quite so enthusiastically, was treading water against most of its major peers, with the only notable move a dip against the yen to 112.25.
As Bloomberg cautions, even as global equities climbed to record levels, investors have remained wary as they await details of Trump’s economic policies and watch for signals on the timing for higher rates. The White House began sketching out plans Monday, as Trump followed promises of infrastructure spending with a caution that tax details won’t become clear until after the costs of repealing the Affordable Care Act are known.
“Tonight is going to be about laying out the agenda,†Paul Kavanagh, chief executive officer of Patronus Partners Ltd. in London, said in an interview on Bloomberg radio. “The bond markets and the stock markets are going to be listening. To push through on many of the initiatives that he’s looking for over the next few months, he’s got to be relatively downbeat about the things that he will want to change.†Fed Bank of Dallas President Robert Kaplan said policy makers should raise interest rates “sooner rather than later†and not pay excessive attention to market expectations. The chance of a rate hike at the central bank’s March 14-15 meeting jumped to 50 percent, federal funds futures showed, from 34 percent just five days ago.
“Dollar bears should take caution if Trump follows through on infrastructure and Yellen ratchets up the rate-hike rhetoric to end the week,†said Stephen Innes, senior currencies trader in the Asia Pacific at Oanda Corp. “The big question for the market is, will Trump use tonight’s platform to execute?â€
Gold was also steady, having hit a 3-1/2 month high on Monday and 10-year U.S. Treasury yields hovered at about 2.36 pct, some 10 basis points down on where they started the year. That suggests that bond investors at least are fully convinced about a substantial pick-up in U.S. growth and higher interest rates.
“While markets no doubt appear to like what they are hearing, the president now needs to deliver, he’s talked the talk and he now needs to walk the walk,” CMC markets chief strategist Michael Hewson said.
Trump met U.S. state governors at the White House on Monday and said he sees “big” infrastructure spending and that he is seeking a “historic” increase in military spending of more than 9 percent. That means some $54 billion of military spending is now on the table, though that appears to be funded by cuts elsewhere in government. Led by engineering, construction and defense firms, Wall St stocks eked out another all-time high, with the Dow Jones recording its 12th straight record, a winning streak not seen since 1987. Futures pointed to it struggling to keep the run going later.
