US GDP data in focus, USD stronger
(Arnaud Masset, market analyst)
Even though the market is almost exclusively focussed on Trump and the implementation of its first presidential orders, investors are keeping an eye on US data, just to make sure that the momentum has not reversed. The first estimate of the fourth quarter’s GDP growth (2.2% median forecast versus 3.5% in Q4) is due for release at GMT 13:00, together with personal consumption (expected at 2.5% versus 3% in Q3). After a solid third quarter, US growth is expected to ease down in the December quarter amid faltering retail sales as oil prices took the elevator and against the backdrop of a rising US dollar. At worst, the US economy could stabilise slightly above 2% growth, while on the other there is substantial upside risk as Trump’s promise of a tax cut, together with infrastructure spending could help to boost household spending, which accounts for roughly 70% of GDP growth.
December durable goods orders are also due for release today and are expected to print at 2.5%m/m compared to a contraction of 4.5% in the previous month. The core measure, which excludes transportation, is anticipated to rise 0.5%m/m compared to 0.6% in November. Over the last 6-months, the trend has risen to an average increase of 0.6% per month. However, this improvement was mainly driven by stable demand for defence-related goods.
The US dollar is rallying for a second straight day after outperforming almost every currency on Thursday. The dollar index surged 0.60% yesterday as the Japanese yen slid 1.10%, the euro 0.60%, the kiwi 0.75% and the pound 0.30%. This morning it was up another 0.25% with the measure testing the 100.80 level ahead of the economic data. We expect the market to have a positive bias toward the US data as if it prints below estimates, the US economy can still hope that Donald Trump will fix it in the coming months.
US equity markets rally continues
(Yann Quelenn, market analyst)
Is this a never-ending increase or should we expect a correction in the near term? The Dow Jones has broken the widely awaited 20K mark, while the S&P hit 2300 points before bouncing lower.
If stocks are trading at record highs, this is not indicative of strong US fundamentals. For the time being, eagerness to better understand Trump’s policies is what is driving US equities. We confirm our standpoint that Trump now needs to deliver and it seems he will. Markets are being misled about the future effects of Trump's Presidency and he now needs to provide far greater detail on his policies to support this rally.
The new president has also been critical of dollar strength in particular against the Chinese Yuan. And while the dollar index has surged back above 100$ we would start reloading bearish US dollar.
We must not forget that central banks are still in the game and that interest rates remain low, underpinning the asset bubble. US data is still not sufficient to trigger a rate hike, while its massive debt needs strong inflation to be killed.