Tuesday 12:30 GMT
Overview
Global stocks are finishing a positive month on a mixed note as traders appear cautious about making fresh bold bets ahead of Donald Trump’s speech to a joint sitting of the US Congress later on Tuesday.
The dollar is fairly steady, while gains for perceived haven assets such as Treasuries and the Japanese yen speak to the underlying tentative tone.
Hot topic
The FTSE All World Index, which last week hit an intraday record high of 295.96, is off 0.1 per cent to 294.24, but still eyeing an advance of 2.8 per cent in February.
It is the fourth consecutive month of gains for global stocks, which would be the longest streak since mid-2014.
The rally has been driven by US equities, which make up 53 per cent of the All-World, a 3,077-member index with a market capitalisation of $50tn.
Wall Street’s S&P 500 is up 4 per cent this month, hitting a succession of record highs, as investors have reacted positively to the fourth-quarter corporate reporting season. The Dow Jones Industrial Average, a price-weighted gauge of 30 blue-chip shares, on Monday recorded a 12th consecutive day of gains, its longest winning streak since 1987.
Asian and European equity measures have reached multimonth highs of late, too.
Powering the broad bullishness are hopes that an already improving global economy — there are signs of a pick-up in China and Europe — can be given an extra boost by the mooted policies of new US president Donald Trump.
What to watch
To that end investors are keen to hear Mr Trump’s address to Congress on Tuesday evening in the US, around 02:00 GMT on Wednesday, in which he is expected to detail his fiscal policies, notably infrastructure investment and tax reform.
“News reports suggest that White House officials view this speech as an opportunity for the president to pass the policy baton to Congress with Trump expected to outline key fiscal initiatives for 2017,” said analysts at RBC Capital Markets.
“The consensus is that meaningful tax policy change won’t be enacted until the first half of 2018 and any concrete impact on these expectations from tonight’s speech could be market-moving.”
A perceived lack of clarity surrounding his administration’s economic policies intermittently has hobbled the “Trumpflation trade” that began when he was elected US president in November.
Notably, the ascent of the US dollar has slowed, while government bonds have recovered slightly from their initial sell-off, pushing yields lower.
Fixed income
The yield on the 10-year Treasury, which hit 2.64 per cent in mid-December, is down 1 basis point on the day at 2.36 per cent.
The more monetary policy sensitive US 2-year bond yield is slipping 1bp to 1.19 per cent, even as traders price in a 50 per cent chance of the Federal Reserve increasing borrowing costs next month, up from 36 per cent just a week ago.
Late on Monday, Dallas Fed President Robert Kaplan said the central bank might need to raise rates “sooner rather than later” to avoid falling behind the curve on inflation.
Helping suppress US yields are the low offerings available from peers. The German 10-year Bund yield is 2bp firmer for the session, but still only 0.22 per cent as worries about the eurozone political climate continue to counteract the recent signs of accelerating economic and inflationary momentum.
Forex
Currency moves mostly are muted ahead of Mr Trump’s speech. The dollar index — a measure of the greenback against a basket of its peers — is off 0.1 per cent at 101.01 as the euro adds just 0.1 per cent to $1.0598 and sterling eases 0.1 per cent to $1.2427.
The Japanese yen is 0.4 per cent firmer at ¥112.18 per dollar. The currency initially weakened against the buck following the release of data that showed an unexpected contraction in industrial production during January.
The Australian dollar is up 0.1 per cent to US$0.7676 after data showed the country posted its narrowest current account deficit since 2001 in the December quarter. The figures helped quell concerns that GDP data due out on Wednesday could show the country fell into recession for the first time since 1991 during the December half.
Equities
US index futures exemplify the market’s cautious mood, pointing to the S&P 500 easing just two points from Monday’s record close of 2,369.75.
The pan-European Stoxx 600 is down less than 0.1 per cent, taking its February advance to 2.6 per cent, while the FTSE Asia Pacific index eased 0.1 per cent for a month’s gain of 2.3 per cent.
Earlier in Asia on Tuesday, Japan’s Topix rose 0.1 per cent and Australia’s S&P/ASX 200 eased 0.2 per cent as banks and miners had a soft day.
Hong Kong’s Hang Seng fell 0.8 per cent but China’s Shanghai Composite was up 0.4 per cent.
Commodities
Energy prices are soft. Brent crude, the international oil benchmark, is down 0.3 per cent to $55.74 a barrel, while West Texas Intermediate, the US marker, is slipping 0.2 per cent to $53.90.
Gold is down 0.1 per cent at $1,251 an ounce.
Additional reporting by Peter Wells in Hong Kong
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