Stocks on Fire, BOC Holds, Brainard Next

A hawkish Fed and soaring stocks are destined for a showdown but it wasn't Wednesday as the S&P 500 had its best day of the year, yields jumped and yen crosses climbed. The Bank of Canada held rates as expected in a truncated statement. The Fed's Brainard is up next. The 3rd USD pair Premium trade has been filled and in progress. The video for Premium subscribers is found below "Time to Exit?".

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A March 15 Fed is priced above 80% as Trump's talk on tax cuts and infrastructure spending ignites animal spirits. The S&P 500 rose 32 points to a record 2395. The next test is a speech from Brainard at Harvard at 2300 GMT. It was scheduled late and if she makes a hawkish comment then a March hike will be close to a sure thing. Brainard is the most dovish core Fed member and a hint from her about a hike is the next best thing to an explicit endorsement from the Chair.

What the stock market and Fed may be ignoring are signs of a sluggish start to the year. Construction spending was soft and spending was up 0.2% in the PCE report compared to +0.3% expected. The divergence between survey data and hard data remains unresolved.

The US dollar was strong Wednesday but flattened late. The currency is still reluctant to chase Trump and buy into the rate differential story but the BOC today underscored the economic differences. The statement held rates, remained neutral, didn't concede any good news and highlighted the large amount of slack in the economy.

USD/CAD rose to 1.3350 which is the highest since Jan 19. A break above the January high of 1.3388 would target last year's highs near 1.36. The Australian dollar remains locked in its recent range. Today's trading features January Aussie trade balance and building approvals, both at 0030