Formally recognising Trump's policies

The Federal Open Market Committee (FOMC) minutes commentary released this morning has formally acknowledged that Trump policies could lead to a rate hike fairly soon.

Janet Yellen
Source: Bloomberg

A rate hike could be read as March. Prior to this meeting, the data points Janet Yellen will be focused on include consumer confidence on 1 March followed by the ISM services report on 4 March, leading up to the FOMC announcement on 13 March.

The minutes released also provided commentary around the members believing raising rates at an upcoming meeting would allow the FOMC flexibility to respond to higher-than-expected economic growth ahead. And in typical FOMC fashion, it added the words ’substantial uncertainty’ about what changes would come. Traders may read this as ‘Trump-based inflation’.

US equities traders that hedge funds by being net long have been telling the world for the past two months there is higher economic growth ahead and is factoring in the balance sheet growth from the expected tax cuts as an extra bonus. The US markets remained flat with only Dupont making gains on European regulators, clearing the way for the mega merger to Dow chemical, its stock also moving four percent higher for the session.

Francois Bayrou has withdrawn from the French election race, lending support to the campaign against Marine Le Penn’s populist national front party. On the news the EUR/USD strengthened to move back over the key 1.05 level as traders closed out short positions.

The AUD/USD has pushed above 0.77 cents overnight and is keeping with overall target of 0.78c in the coming weeks.

This strength coming from underlying support in the commodities market looks to be holding even as iron ore overnight consolidated at $94.30.

Copper also eased back after a great run, and the market will be very cautious of potential shortages as key suppliers BHP and Freeport McMoran face mine closures in Chile and Indonesia. The risk is a physical shortage of the metal by mid-2017.

In the ADR market this morning, BHP has traded at $25.77, suggesting a move lower in today’s Australian trade. This is down from yesterday close of $26.55. Following BHP’s 1H results trading, the stock has been mixed across the major exchanges with the equity also down 2.7% in London overnight.

Traders will be watching reports that Trump’s phenomenal tax plans may benefit RIO and BHP - both stocks have been upgraded to a buy from a hold by many analysts. With the 60% rise in iron ore since last September, these two companies have significant potential to continue the already-established primary up trend with the broader commodities markets providing strength.

Australian market technicals do not show an over extension as only 14 percent of equities remain at four-week highs with 61 percent trading above their 20-day moving average.

Today the market will receive reports from Alumina, OZ minerals, Flight Centre, Qantas and Macquarie Atlas Roads. Twenty one companies are reporting today.

With the ASX 200 attempting to hold the 5800 point level as support, traders will be cautious of any overall negative commentary and monitoring forward looking statements on the outlook for growth.

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