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Trump has suggested the Euro area lift defence spending to 2% of GDP. The only countries short of this target are Italy, Spain and Portugal whose debt-to-GDP ratios still exceed 100%, while the US still spends a whopping 45% of GDP on defence.
The Trump rally will now depend on economic numbers coming through. The Dallas manufacturing index came in at 10.2 against 2.0 expected and this week’s non-farm payroll number will also have a greater influence in the current market rally.
The most crowed trades in the FX markets are USD/JPY 112.25 and EUR/USD 1.0597. Both saw early profit taking but remain off the session lows. An important level was held in the USD index after trading as high as 102.02 still remains positive over the key 100 level at 101.35. Both markets saw losses in the early part of the session, only to regain some of the lost ground later in the close. This suggests the trade is not over, but the markets certainly have reached an inflection point and are now playing the waiting game on political and economic outcomes.
Politics in Italy and France will bring in some uncertainty in the short term. OPEC is still trying to tie the knot with a capped production oil deal between member and non-member nations, and oil remains steady with Brent holding $48.00/bl.
US markets posted moderate falls with the Dow down 40 points in closing trade. Most sectors saw price weakness early in the session with the Russell 2000 the best performing index, also slightly lower to 1334 points.
To make the risk off picture complete, the utilities sectors saw modest gains into the close.
I would expect this to flow through to the Australian sectors today in TLS, SYD airports and Transurban.
Gold regained some composure and is looking to retest $1200/oz, from recent lows of $1176/oz. We will see this playout in the Australian gold sector today with the AUD-gold price ticking back over $1600/oz. The resource sector in the Australian market continues to see M&A with Yancoal taking some assets from RIO.
BHP’s overnight ADR has the stock at $25.72 down from yesterday’s close of $25.81 and CBA’s ADR is at $77.16 down 13 cents from yesterday.
The ASX futures market is six points higher today and is looking for a flat open at 5470 points.