Monday was another day of confused trading as the dollar was hit by soft data and a slowdown on Trump's tax plan but rallied late anyway. The euro was the top performer while the yen lagged. Japanese industrial production data is due later. A new USD trades has been issued to the Premium Insights ahead of Trump's pre-speech interview on Fox News between 6-9 am EST (11:00-13:00 BST). The charts and notes of the trade shall be posted ahead of the Tokyo Tuesday session.
The headline didn't tell the story on US January durable goods orders. They rose 1.8% in the month compared to the 1.7% consensus but that masks a revision to December to -0.8% from -0.5%. Moreover, the key component on non-defense capital goods orders ex-air was down 0.4% compared to a 0.5% rise expected. US pending home sales data also missed estimates later.
The data put a negative bias into the US dollar but was lifted by Trump. Some disappointment set in as the administration shifted the focus of Tuesday's congressional address to Obamacare and military spending from taxes. Trump said a tax plan can't come until the cost of healthcare changes are clear.
The disappointment on taxes was balanced by Trump hinting about big spending on infrastructure. What's happening in the background is that various parts of the Republican administration are angling different priorities based on what's possible to accomplish. Trump had laid out something like taxes, Obamacare, infrastructure but that created some logistical challenges and Obamacare, infrastructure and taxes now seems like the plan.
There is room for disappointment there but until negative details emerge, the market wants to remain hopeful.
With Trump largely taking himself off this week's agenda, the focus may shift to the raft of Fed speakers on the agenda, culminating with Yellen and Fischer on Friday. Fed hike odds have crept up to 40% in what increasingly looks like it will be a tough meeting to handicap.
Looking ahead, Asia-Pacific traders will focus on Japanese industrial production at 2350 GMT. The consensus is for a 0.3% m/m rise after a 0.7% climb previously. Retail sales, construction orders and housing starts are also due later. For Australia, Q4 current account data is due at 0030 GMT. As it stands, the Australian dollar is the best performer in February.
|Core Durable Goods Orders (m/m)|
|-0.2%||0.5%||0.9%||Feb 27 13:30|
|Industrial Production (m/m) [P]|
|0.4%||0.7%||Feb 27 23:50|
|Pending Home Sales (m/m)|
|-2.8%||1.1%||0.8%||Feb 27 15:00|
|Housing Starts (y/y)|
|3.3%||3.9%||Feb 28 5:00|
|-3.8B||-11.4B||Feb 28 0:30|
The last-minute rally in stocks on Friday led to an 11th consecutive record high in the DJIA in a market that's flashing too many warning signs to ignore. The pound is lower to start the week on talk of a fresh Scottish referendum. We look at the rising optimism on AUD and CAD in the CFTC positioning report. The chart below indicates the highest and weakest performers against the USD since the start of Monday's Asia-Pacific trade.
Dual narratives of populist optimism and political uncertainty are sending dual signals in the market. US yields are threatening to fall to the lowest since November while stocks run away higher. The enormous last-second bid in US equities Friday put the Dow on the longest winning streak singe Reagan.
Measures of stock market sentiment, volatility and insider selling are screaming that the market is overly complacent. The optimism is largely surrounding hope Trump will deliver on tax reform and there is good basis to believe corporate taxes, will be lowered but other signs show he has a tough road ahead. Given the global uncertainty and lack of anything concrete from the administration and likelihood of jitters ahead of Tuesday's address to Congress, the level of complacency is far too high.
In the UK, The Times of London reports that Theresa May is preparing Scotland to potentially announce a referendum in March. That's a cold, calculated move on independence just as the UK gets set to invoke Article 50.
The pound fell 50 pips at the open and is testing support in the 1.2400/1.2383 zone. Another vote would hang over the pound like a guillotine but in the day ahead the trade will be a denial or confirmation. A thrust of selling at the London open would test some recent support levels and could open the way for a run to the 2017 lows.
Much has been said and promised by president Trump and French Independent presidential candidate Emmanuel Macron. Now it's time for details. In the case of the US, the Fed has become not only increasingly tight-lipped with regards to Trump's fiscal plans (Yellen's 2-day testimony last week and this week's FOMC minutes), but the Fed's lack of certainty on the topic will begin to impact its ability to make forecasts. In addition to Friday's Yellen/Fischer speeches, look out for Tuesday's event risk (coinciding with month-end flows):
Super Trump Tuesday: Markets will shift attention to next Tuesday's Trump's address to the joint session of Congress Feb 28, expected to unveil more details on the border adjustment tax. The implications for labour costs, consumer prices and the budget deficit are considerable for the Fed and the US economy.
In the case of France (& euro), Macron has climbed in the polls to the extent of dampening market fears of a Le Pen victory, but lately, he has been criticized for failing to provide a coherent set of campaign promises -- something he pledged to clarify by next week. France-German spreads starting to matter to the extent that they have turned inversely correlated with the euro. This has several implications: i) Forcing the ECB to carry out asymmetric QE policy by focusing on French bonds at a time when inflation is on the rise. ii) As the 10-year France-Germany spread hits 5-year highs, the euro is unable to hold on to its daily session gains, which will raise the issue of currency depreciation with the US.
23 days after we issued our SILVER long, backed by 6 factors, we have just issued a new set of 6 technical factors and 3 fundamental forces underpinning the trade in our Premium Insights.
Here is a quick a video on how to use our FX & Metals Performance Chart. And yes, the chart IS REAL TIME. Play video.
A market that rallies on promises is taking a leap of faith, especially political promises. The pound was the top performer Thursday while the US dollar lagged on signs Trump will be slow to deliver. The RBA's Lowe lamented the high AUD in early Asia-Pacific trading.
The shortest version of Trump's campaign promises included less regulation, lower taxes, repealing Obamacare and infrastructure stimulus. Naturally there was much more than that but he talked like a man who was used to getting things done and his slowly finding out that Washington moves slower than an arctic construction project in January.
One third of his first hundred days have already been lost without any blueprints for major reforms. Something is coming on taxes early next week but that promises to be an arduous process. An Obamacare replacement will have to come before a budget and the fiscal hawks are circling.
Trump's team evidently looked at a realistic Washington timeline and decided that infrastructure spending will be kicked into 2018. The fringe benefit is that it's anticipated to be less of a fight ahead of the mid-term elections.
The first sign was Kellyanne Conway hinting at an administration playing the long game. That was followed up by Mnuchin lowering expectations for the government to provide stimulus this year. Finally, a report confirmed the suspicions. It said the longer timeline was Plan B but it sounds like the only realistic way forward.
The dollar was the victim as it slid across the board. It was balanced somewhat by less aggressive comments on the dollar by Mnuchin.
The market was unwise to believe Trump's agenda could easily be achieved but the dollar was swept higher in the post-election squeeze. That same squeeze may still be fuelling the stock market as it closed higher Thursday despite a beating in infrastructure-sensitive stocks.
The next question is how badly hobbled will the agenda be? The market may still be too optimistic that any effective action will be taken. The Congressional reception to Tuesday's tax plan may offer a clearer picture.
Turning to Asia-Pacific trading, the Australian dollar rose to a fresh post-election high as USD sagged. The RBA's Lowe said he would like to see AUD lower and said commodity prices are likely to fall but he tempered that by saying that it's hard to argue that AUD is fundamentally overvalued.
The rest of the calendar for Friday Asian trading is light.