trump is still the tail wagging the feds dog 1844392017
Aside from the torrent of earnings releases (see more below) the European markets on Thursday are likely to digest the Fed minutes from its meeting […]
Aside from the torrent of earnings releases (see more below) the European markets on Thursday are likely to digest the Fed minutes from its meeting […]
Aside from the torrent of earnings releases (see more below) the European markets on Thursday are likely to digest the Fed minutes from its meeting that concluded on 1st February. In essence these minutes were as much a warning signal for markets to trust in Trumpenomics at your peril, as they were an update on the Fed’s economic assessment of the US economy.
The key things that we took from these minutes are listed below, the most important, from a market perspective, are first:
Overall, the Fed is in an impossible position. It can see the improvement to the economy; yet, the threat of an economic or fiscal misstep from the Trump administration hangs over Yellen and co. like Damocles’ sword. The truth is, the Fed is unlikely to hike rates until we know the detail of Trump’s plans, particularly the corporation tax cuts and the fiscal spending. If either of these plans don’t materialise, or disappoint, then we could see markets tumble, business confidence shatter and economic growth moderate.
Can Trump meet the high expectations of the market?
We will hear from Trump when he addresses Congress on 28th February. The market, along with the Fed, will be expecting to hear more than just rhetoric, and expect detail on actual plans that have been agreed by the Republican Congress regarding tax and spend policies for the coming years. Anything else could puncture this rally, as the Fed has warned in their minutes.
If Trump fails, the Fed to the rescue
The good news for equity bulls, even if markets sell off on the back of a less than impressive Trump economic programme, the Fed could still be there to cushion the blow and pledge to keep interest rates low. That is bad news for financial stocks, but good news for the broader market as it could keep the cost of capital low. On the flip side, this raises the question of whether Trump could actually puncture the equity market rally if he does keep his word on his economic plans, and the Fed delivers more frequent rate hikes than currently forecast because of it.
Can the FTSE 100 reach a fresh record high?
The FTSE will also be in focus on Thursday, as it’s a bumper day for UK earnings, with Barclays, British American Tobacco, BAE Systems, RSA Insurance and Centrica the highlights. The market will want to see if better than expected earnings can trigger a fresh record high in the FTSE 100, 7,354 – the high from 16th Jan – is the level to beat.
Also worth watching on Thursday is the performance of Exxon, which took a record hit to its reserves due to the oil market rout, it announced on Thursday. The cut was mostly down to a $16bn write down in oil sands investments. The Dow managed to eke out a gain on Wednesday, even though Exxon, one of the largest constituents of the Dow saw its share price fall 1% on the news.
Treasury secretary changes his tune on the dollar
Also worth noting, Treasury Secretary Mnuchin, said that a strong dollar reflects strength in the US economy, in an interview with the Wall Street Journal released on Wednesday. This is a change of tune from the Treasury Secretary, who had sounded concerned about the strength of the dollar when he was testifying to Congress during his confirmation hearing. This story broke late on Wednesday, when liquidity was thin, it will be interesting to see if the dollar catches a bid on Thursday on the back of these comments. The buck had moderated along with Treasury yields in the final hours of Wednesday’s NYC session after the release of the Fed minutes and also had a weak start to trading on Thursday.