Global Themes

Politics or Interest Rates - what’s driving markets?

  • President Trump’s address to Congress lacks detail   
  • Fed futures show odds for March rate hike now greater than 60% 
  • UK Manufacturing PMI this morning

Trump

President Trump’s address to Congress lacks detail 
In his much anticipated speech last night President Trump was able to keep markets at ease despite a lack of detail with regard to tax and spending plans.

Trump announced plans including $1 trillion of investment in infrastructure, a large increase in defence spending, a replacement of Obamacare and tax relief for the middle class. This desire to spur growth in the US through ambitious spending plans is seen as positive for the US dollar and was the catalyst for the rally we saw after Trump’s acceptance speech in November. Since then, investors have been losing faith in whether Trump can deliver on these ambitious plans and with no further detail provided on how he will actually fund this spending the reaction was far more muted compared to what we saw last year. GBP/USD initially rose during the speech last night only to see these gains given up soon after. 

Fed

Fed futures show odds for March rate hike now greater than 60%
Focus has now shifted to speeches from Fed officials this week before Chair Yellen speaks in Chicago on Friday. 

After a raft of speeches from Fed officials recently, overnight two more have added to the expectation of a US rate hike on March 15. William Dudley said the case for rate hikes has become a lot more compelling and John Williams expects a rate increase to receive serious consideration at this month’s meeting. This gave investors something to grab hold of after the limited reaction post Trump’s speech and gave the US dollar impetus to push higher and GBP/USD to squeeze lower this morning.   

UK Manufacturing

UK Manufacturing PMI came in slightly below market expectations this morning.
UK manufacturing PMI printed at 54.6 this morning slightly missing market expectation of 55.7. This is a forward looking economic indicator where a survey of around 600 purchasing managers asks respondents to rate their companies view of business conditions. A number above 50 is deemed good and indicates that industry is expanding, however a number below market expectations has seen the pound push lower this morning. This is the first of three PMI releases – the others being for construction and services on Thursday and Friday, which will also likely direct sterling’s movements this week. 

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