Trump Addresses the Nation

Daily Analysis - 01/03/2017

Promises to Fix Infrastructure, Healthcare, and Military Dominate Congressional Speech

In remarks intended to heal divisions and bring about a bipartisan effort to fix American infrastructure and the economy, US President Donald Trump outlined his upcoming initiatives in broad strokes, vowing once again to create a brighter future for American families and businesses.

US Dollar Pushes Higher on Trump Pledges

Even though nothing startlingly new was announced during Trump’s speech before the US Congress on Tuesday, promises related to spending, tax reform, trade, and healthcare were enough to spur additional optimism in the dollar overnight. Although the US currency faced renewed pressure after the second estimate of US gross domestic product for the fourth quarter came in below the consensus estimate, confidence figures reported by the Confidence Board showed that the US consumers are the most optimistic since 2001.

Corroborating this idea was the consumer component of GDP which helped offset weaker government expenditures and business investment. Helping to bolster the outlook is rising speculation that the Federal Reserve will raise rates in March, with the CME Group’s Fedwatch tool pricing 35.40% probability of a rate hike in March. In the meantime, gains in the dollar are sending USDCHF higher, with the pair briefly retaking the 1.0100 level.

Chinese Factory Growth Endures

Purchasing Managers’ Indices reported by both Caixin and the China Logistics Information Center for the manufacturing sector managed to top expectations during the month of February according to figures released overnight. The Caixin Manufacturing PMI climbed to 51.7 from 51.0, beating forecasts of a slight tapering in activity 50.8. Besides the 8^th-straight month of expansion, business confidence rose significantly during the period as new export orders rose by the fastest pace since 2014.

Though certain aspects of the data are signaling that global trade may be cementing a more sustainable rebound, analysts were quick to caution that a full recovery is still not assured despite the pickup in manufacturing. The Yuan has sold off since the announcement, with USDCNH touching two week highs before pulling back modestly.

Oil Slips After Advance Inventory Figures

Early inventory figures delivered ahead of today’s official data from the Energy Information Administration showed US crude oil inventories reaching brand new heights. Data released by the American Petroleum Institute late on Tuesday showed that crude stockpiles climbed by 2.502 million barrels last week, coming in slightly below forecasts of a 3.000 million barrel build. However, the real fireworks were related to the increase in gasoline inventories which managed to rebound spectacularly after the previous week’s drawdown. The amount in storage rose by 1.840 million barrels compared to expectations of a -1.500 million decline.

However, the real test for oil is whether the Department of Energy confirms these developments later in the session with the release of official EIA figures. Oil prices slid after the data, closing back below $54.00 per barrel and extending the slide overnight during the Asian session.

Australian GDP Bounces Back

Following the unexpected contraction in economic activity during the third quarter, the Australian economy has rebounded spectacularly. On a quarterly basis, expansion totaled 1.10% during the final three months of 2016, beating expectations of 0.70% while bringing the annualized pace of expansion to 2.40% from the 1.80% reported during the third quarter. Besides managing to skirt a recession which typically implies two quarters of GDP contraction, the figure was bolstered by strong consumer spending fundamentals, business investment, and a vast improvement in trade during the period.

In particular, exports of goods rose by 2.60% during the period, with the predominant gains coming from upside in agriculture and mining. However, there were some soft spots, specifically manufacturing and construction activity alongside flat government expenditures for the period. The Australian dollar has gained since the announcement despite some strength in the US dollar which has kept a lid on AUDUSD gains.