FTSE +25 points at 7288
DAX +56 points at 11890
CAC +30 points at 4888
Euro Stoxx +18 points at 3337
Donald Trump’s first congressional address didn’t trigger a storm as feared, yet failed to satiate investors due to a serious lack of details. As expected, Donald Trump announced significant rise in defense budget and the reinforcement of immigration laws. He reiterated his focus on jobs creation and cited that many US companies including Ford Motor (NYSE:F), Wal-Mart (NYSE:WMT) and SoftBank Group (OTC:SFTBY) announced ‘billions of dollars in investment’ which would create ‘thousands of new American jobs’, without however giving accurate numbers and a clear strategy for the future. The freshly elected US President said he would spend up to $1 trillion in infrastructure, twice as much as $500 billion hinted following his election. However, he has avoided key subjects such as the financing of the extra spending, the federal deficit, amendments to regulations and the banks.
The US border tax plan, aiming to replace the corporate income tax by 20% increase on imports and domestic sales, failed to gather an unanimous consent, given that the import-driven businesses as retailers, carmakers and refineries opposed to the plan, while export-driven businesses were delighted to be exempt of taxes.
The US stock indices traded with limited downside, as investors gave the Trump Administration the benefit of doubt, although Trump’s policy details, or lack thereof, is increasingly disconcerting. Asian traders were buyers of the US stock futures. The Dow Jones futures gained 0.17%, while the S&P 500 and Nasdaq futures advanced 0.27% and 0.16% respectively.
We warn that the VIX index, the volatility index on S&P500 futures, rose 6.87% to one-month highs (13%). The VIX index stepped above its 100-day average (11.72%). Further rise in volatility to 15% and above could be interpreted as an early indication of rising anxiety vis-à-vis the US stock markets.
The US dollar appreciated across the board, as two influential Federal Reserve (Fed) members, Dudley and Williams called for an interest rate hike at the FOMC’s March meeting. In fact, prospects of significant fiscal spending could push more Fed members to the hawkish camp as soon as March. The expectations of a March Fed rate hike spiked up to 80%.
In China, the February manufacturing PMI beat estimates, as manufacturing in Australia expanded significantly fast over the same month (59.3 versus 51.2 a moth earlier). The Australian GDP printed 1.1% quarter-on-quarter growth in Q4, up from -0.5%q/q. Hence, Australia avoided a technical recession, a term used to define two consecutive quarters of contraction in growth. The Aussie (+0.14%) was the only G10 gainer against the US dollar. The AUD/USD rebounded from 0.7637 to 0.7700. The lack of carry appetite could dent the positive momentum in AUD/USD in the short-term, yet the pair is expected to find buyers above 0.7604 (minor 23.6% retracement on December 22 to February 22 rise) and 0.7545 (200-day moving average). The topside is presumed clear up to 0.7585 /0.7800 mid-term resistance area.
The smooth market action following Trump’s speech, rising expectations for Fed rate hike and solid data out of China and Australia revived a relief rally in Asian stock markets. Nikkei (+1.44%) and Topix (+1.16%) gained as the USD/JPY traded past the 100-day moving average (113.30) in Tokyo. The USDJPY bias turned neutral from negative, as 111.45/111.60 has become the mid-term support to the fresh neutral view.
Shanghai Composite (+0.13%) and Hang Seng index (+0.10%) lacked enthusiasm on Trump’s import tax plans.
Oil and commodity prices firmed, gold dropped to $1242.
Cable traded below the 50-day moving average (1.2410) in Asia. Softer pound and firmer oil and commodity markets indicate a positive open for the FTSE 100 in London.
The DAX and the CAC are set for an upbeat open as well, as they are handed over a risk-on session from Asian traders.
Pharmaceuticals are expected to open under pressure in Europe after Donald Trump urged to bring drug prices lower ‘immediately’.