From Marc to Market:
The much-anticipated speech by US President Trump was light on the details that investors interested in, like the tax reform, infrastructure initiative, and deregulation. There appears to be an agreement to repeal the national healthcare, but there is no consensus on its replacement.The gains in the US dollar appear to be more a function of shifting expectations of Fed policy than new clarity on fiscal policy. By Bloomberg's calculation, there is now an 82% chance the Fed hikes in two weeks. Our interpolation puts the odds at 74%. New York Fed President Dudley's remark that an increase in rates has become "more compelling" was the catalyst.Seven Fed officials are still set to speak this week. Governor Brainard speaks after the US markets close today. Although she is not part of the Fed's leadership core, her insight last year, and particularly the importance of the international settings, was important. On Friday, both Fischer and Yellen speak. Given the proximity of the March 15 FOMC meeting, it would be the last significant opportunity to try to shape market expectations.The US dollar is stronger against all the major currencies but the Australian dollar. News that Australia's economy expanded 1.1% in Q4 16, among the strongest quarterly performances in the past five years lent support to the Aussie, which continues to encounters offers around $0.7700. It found bids near $0.7640, which need to be absorbed before it can test the lower end of the recent range near $0.7600.The story behind Australia's recovery after the contraction in Q3 was a dramatic (9.1%) improvement in the terms of trade, due to the rise in iron ore and coal prices. This, in turn, seems to be a function of the stabilization of the Chinese economy. News earlier today showed that Chinese manufacturing PMI is rising to 51.6 in February from 51.3 in January. Output, new orders, and business expectations improved. The non-manufacturing PMI slipped to 54.2 from 54.6.The dollar briefly traded below JPY112 yesterday and now is trading near JPY113.65. Japan did report stronger than expected Q4 capex (3.8% vs. 0.8% expectations), and record corporate profits in Q4. However, the weight on the yen appears to be emanating from the rate differentials, and in particular the rise in US yields. The 10-year premium to be garnered in the US over Japan stands near 2.36% today. It finished last week near 2.24%. Yesterday, the dollar recorded a bullish hammer candlestick pattern and the follow through buying today, has lifted the greenback to test the JPY113.70 area, which corresponds to a 61.8% retracement of the dollar's slide from February 15's test on JPY115 to yesterday's low near JPY111.70, near the lows seen in the first half of February. The JPY115.00 would be the next target if the JPY113.75 can be overcome.The February eurozone manufacturing PMI ticked down from the flash (55.5) to 55.4, but it is still better than the 55.2 January reading and is the highest since the time series began in early 2014. The minor lower revision seems to stem from German where the flash manufacturing reading of 57.0 was revised to 56.8. Separately, Germany reported a somewhat larger than expected fall in unemployment (-14k rather than -10k)....MORE
