Wednesday had been an action packed day with several high-key events. Certainly the better-than-expected February purchasing managers’ index (PMI) from China provided some relief for regional markets, reflecting an improvement in the expansion of the manufacturing sector of Asia’s giant. This is likely to extend the optimism surrounding the theme of stabilisation within the manufacturing sector for Asia and keep markets supported in the near term.
The release was soon followed by President Donald Trump’s first speech to Congress. The pro-American speech laced with little details, beside a strong jab of a $1 trillion pledge to rebuild infrastructure, had probably not matched up to the market’s expectation for specifics. However, the market had also been quick to adjust and looked past the President’s address towards the Federal Reserve. USD/JPY briefly dipped in the latter part of the President’s speech, but more than made up for the slide into the end of Wednesday as Fed hike expectations bloomed. While the speech may be over, the long-drawn process in deciphering the new administration’s plans is far from over.
We have seen a significant pick up in expectations for a March hike both by Bloomberg’s computation at 80.0% as of Wednesday and CME Group’s Fed Watch tool at 66.4% probability. Admittedly, the set of data we have seen since the start of the week had been a mixed one. The comments from the series of Fed speakers had instead been too jarring to ignore. The latest hawkish tone was held by a known dove, Federal Reserve Governor Lael Brainard, pushing the case that a rate hike could occur ‘soon’ further reinforces the bets for a March hike.
The USD index was seen up 0.65% on Wednesday, eyeing the 102.00 level overnight. The debate on who moved the markets was heard as Wall Street shot to new highs. Supporting the sharp move overnight had likely been both the lift in rate hike expectations and the positive tone held by the President in his speech. The Fed appear to be decidedly pushing the case for an imminent Fed hike and a positive performance from next week’s jobs report could really help to clear the way for March.
Asian markets are in for a strong boost in the day with early movers delivering strong gains this morning. Attention during the day focuses on Malaysia’s central bank meeting and the local February purchasing managers’ index for Asia. Another Fed appearance by Fed’s Mester will be due in US hours today.
Yesterday: S&P 500 +1.37%; DJIA +1.46%; DAX +1.97%; FTSE +1.64%