European and Asian stocks, S&P futures, bond yields, the dollar and commodity metals are rose, in some cases making new all time highs, lifted by the latest reemergence of the “Trump trades” as hopeful investors once again bet that the U.S. president’s tax reform plans will boost economic growth and corporate profits, despite another warning from Goldman that the president’s fiscal plan is about to be derailed.
Global stocks continued to rally ahead of this week’s key US CPI data, and ahead of speeches from a range of Federal Reserve officials including the all important Yellen testimony in Congress. The dollar extended gains after its first weekly advance since December, and Treasuries fell. Iron ore surged and copper climbed, buoying commodity producers.
Mrs. Yellen will be busy on Valentine’s Day as the highlight this week is her semi-annual monetary policy testimony on Tuesday and Wednesday. There are probably too many unanswered questions about the new Trump administration’s fiscal plans and not enough additional hard data for her to deviate too much from her January 19th speech and the February 1st FOMC statement. Nevertheless the testimony is always a big event. Perhaps Trump’s plan to address a joint session of Congress on February 28th overshadows this especially as last week he discussed how he is going to announce a ‘phenomenal’ tax plan within 2-3 weeks. So even though we’re unlikely to hear much new from Yellen, DB believes she will use it as an opportunity to emphasise that the economy is reaching Congress’ legislated mandates of full employment and price stability. While Yellen will reiterate the “every meeting is live” mantra, she is not expected to strongly signal a March rate hike, although according to BofA it is possible she makes the March meeting “live.” Yellen will likely address Fed balance sheet strategy in broad terms as it does not appear that the FOMC has formed a consensus around the details.
Back to US stocks, where “the market is betting that Mr. Trump will succeed in cutting taxes and therefore we can have an increase in U.S. Corporate earnings without needing a significant shift in the economic environment itself,†James Bevan, chief investment officer at CCLA Investment Management Ltd., said in a Bloomberg TV interview. “For me the big issue is his announcement on taxation and then the amount of support he gets for the reduction in corporate tax.â€
Continuing the US euphoria which has the S&P trading in record high territory, up 0.1% from Friday’s close, at 2.316, Asian stocks rallied to 18 month highs and European stocks rose for the fifth consecutive session on Monday, the longest winning stretch for two months. The Japanese yen was the biggest loser among DM currencies, as always happens when risk is bid. The weakness followed the Trump-Abe summit which comforted investors after ending smoothly without President Donald Trump talking tough on trade, currency and security issues. More importantly, Trump held off from repeating harsh rhetoric that accused Japan of taking advantage of U.S. security aid, stealing American jobs and “playing money markets.”
Those apparently cordial discussions drove the dollar as much as 0.9 percent higher against the yen to 114.17 yen. It last stood at 113.70 yen, up 0.4 percent on the day and extending its rebound from a 10-week low of 111.59 yen touched last week.”The U.S. president has shown further signs of conformity in U.S. foreign policy during his weekend summit with Japan’s prime minister Abe,” Rabobank analysts said in a note on Monday.
“Markets have continued Friday’s upbeat theme,” said Kathleen Brooks, research director at City Index in London, quoted by Reuters noting that the VIX measure of U.S. stock market volatility closed last week below 11 for the third week in a row. The last time this happened was over a decade ago. “This is another sign that, for now, the Trump trade is still on. It also suggests that even with the controversy Trump has caused since he took office, financial markets are still willing to give him the benefit of the doubt,” Brooks said.
Comments from Trump on Thursday that he plans to announce what he said would be the most ambitious tax reform plan since the Reagan era in the next few weeks rekindled hopes for big tax cuts. Economic data from major economies has also been upbeat, including Friday’s Chinese trade figures, while U.S. corporate earnings have been also solid so far.
Europe’s benchmark index of leading 300 shares was up 0.3 percent at 1453 points, lifted by the mining and basic resources sectors. Basic resources rose 2.5 percent to their highest since August 2014. Germany’s DAX was up 0.4 percent, led by a 15 percent rise in drugmaker Stada after the company said it had received two offers for the acquisition of the company, one of which is private equity group Cinven Partners LLP.
MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.5 percent, with resource-related stocks again the driving force, while Japan’s Nikkei rose 0.4 percent. Figures on Monday showed that Japan’s economy grew for a fourth straight quarter in the final three months of last year as a weaker yen supported exports, but doubts over the sustainability of the recovery persisted.
U.S. futures pointed to a higher open on Wall Street. The S&P 500, Dow Jones Industrials and Nasdaq Composite all posted record closing highs on Friday.
The euro’s rise of 0.5 percent against the yen to 121.00 yen, helped lift the European currency slightly against the dollar. The euro was last up 0.1 percent at $1.0650, inching further away from Friday’s three-week low of $1.0608. The euro has been dogged by fears about a strong showing for French far-right leader Marine Le Pen ahead of a presidential election.
