Twelve in a row and counting as the Dow closed higher for yet another consecutive record close, as well as new record highs for both major US benchmarks, and this looks set to translate into a positive European open this morning.
The catalyst was once again orchestrated by President Trump himself as he sketched out plans for spending large sums of money on infrastructure and defence spending, with the details likely to be fleshed out later today, after US markets close in his eagerly anticipated speech to a joint session of US lawmakers.
His $54bn plan helped push the share prices of construction and defence companies higher in both Europe and the US, with CRH (LON:CRH) climbing in anticipation of higher spending on roads and transport infrastructure spending, while US companies Lockheed Martin (NYSE:LMT), Boeing (NYSE:BA) and Northrop Grumman (NYSE:NOC) all closed higher.
The President says he intends to pay for the 10% increase to defence spending, as well as a road and rail infrastructure plan by cutting in other areas, with the state department a likely target as well as foreign aid.
He went on to temper expectations about outlining future tax proposals by admitting that he could not make an announcement on that until after a replacement proposal for Obamacare has been completed, which could take several months.
While markets no doubt appear to like what they are hearing, the President now needs to deliver, he’s talked the talk and he now needs to walk the walk.
If he fails to do so we could well see a swift market reaction and while the general consensus would appear to be that a Republican President is likely to have a better chance of getting his away at a time when Republicans control both major legislatures there is still the problem of the debt ceiling which needs to be raised by March 15th, the same day coincidentally as the culmination of the next Fed rate meeting.
In October 2015 the debt ceiling limit was suspended until March 15th in a deal by then President Obama and John Boehner, and now a new deal is needed. There are likely to be some in the Republican Party who could make life difficult for President Trump as we get closer to that date.
On the data front there was some mixed numbers yesterday for January durable goods and pending home sales, while today we’ll get the latest revision to US Q4 GDP which is expected to improve to 2.1% from 1.9%.
The US trade deficit is expected to widen out to $66bn in January while the latest Chicago PMI which so disappointed in January is expected to rebound in February to 53 from 50.3.
The pound had a bit of a rough day yesterday on some dubious weekend reports about the potential for another Scottish referendum. These were swiftly denied by Downing Street officials with the main focus this week set to be on the latest February PMI’s which are due out starting tomorrow, and a possible attempted amendment to the Brexit bill by the House of Lords, which could well cause a standoff with the House of Commons.
EURUSD – the euro continues to chop around despite last week’s new one month low at 1.0493.The bias still remains for a move lower towards the lows this year near 1.0340. We need to recover back through the 1.0680 area to retarget the highs at 1.0800.
GBPUSD – the pound continues to find support in and around the 1.2380/1.2400 area and 50 day MA having failed at the 1.2580 area last week, which continues to cap gains. We now need to push back through 1.2600 to retarget the 1.2700 area. Only a move below 1.2400 targets the 1.2250 area.
EURGBP – yesterday’s rebound took us back through 0.8520 to the 0.8540 area, but we’ve been unable to follow through to the 0.8570 area. While below here the bias remains for further declines towards the December lows at 0.8300.
USDJPY – starting to come under pressure towards the lower end of the recent range with support at the twin lows at 111.60. A move below 111.50 targets the 110.00 area. We need a pull back above 113.20 to retarget the range highs at 115.00
FTSE100 is expected to open 17 points higher at 7,270
DAX is expected to open 30 points higher at 11,852
CAC40 is expected to open 12 points higher at 4,857
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