The FTSE 100 is trading little changed on the day as markets are looking to Donald Trump’s speech to both houses of Congress in the early hours of Wednesday morning for further direction. The pound is fairly mixed too, with the rise in the Swiss Franc and Japanese Yen the only real significant movers against sterling.
US stocks continue to break records
The Dow Jones Industrial Average continued higher yesterday with the stock market posting its twelfth successive record closing level - the longest run of all-time high closes since 1987. However, whilst stock markets continue to rally almost unabated - seemingly on the expectation of a major fiscal expansion from the Trump administration - other asset classes are less certain. The yield on US debt and the US dollar, which both rose almost in unison with stocks following Trump’s unexpected victory, have both seen some downside in recent weeks and currently trade some way off their post-election highs. These assets seem more cautious as to the likelihood of a major change in fiscal policy and are adopting a more wait-and-see approach compared to stocks. President Trump’s speech later today has some expectation that he will provide more clarity on the how and when of the proposed stimulus and a failure to satisfy this could see some weakness ahead for stocks. Before that we have US GDP out this afternoon, but this is unlikely to prove a major market mover due to both its lagging nature and the close proximity to Trump’s speech.
Gold stocks fall ahead of Trump
The worst performing stocks on the leading UK stock benchmark this morning are Randgold Resources (LON:RRS) and Fresnillo (LON:FRES) as Gold futures sold off after the London close on Monday. Before that the price of the precious metal had moved to its highest level since mid-November but the late sell-off coincided with a rise in the buck and could be seen as an example of position squaring ahead of Trump. Whilst Gold and stocks traded with a high inverse correlation for around seven weeks following the US election with the former tumbling and the latter rallying, this year has seen a substantial about turn as both have risen together. The divergence seen in the past two months can obviously continue to widen but judging by the tight nature of the turn with no major fundamental catalyst, and in the absence of any other factor yet usurping US politics in providing the driving force for gold or stocks, the current moves suggest that something may have to give in the not too distant future. This poses a potentially paradoxical question for traders going forward; is Gold correct in “pricing-in” a greater chance of Trump ultimately disappointing with his Fiscal plans? Or are rampant stock market bulls correct in seemingly assuming that this is a foregone conclusion? Tonight’s speech from Trump could well provide the answers.