Stocks finish solid February on a cautious note

Global traders cautious before major Donald Trump speech

Global stocks are finishing a positive month on a mixed note as traders appear cautious about making fresh bold bets ahead of a speech by Donald Trump to a joint sitting of the US Congress.

The dollar was mostly fairly steady on Tuesday, though gains for perceived haven assets such as treasuries and the Japanese yen speak of the underlying tentative tone.

The FTSE All World Index, which last week hit an intraday record high of 295.96, was off 0.1 per cent to 294.06, but still eyeing an advance of 2.8 per cent in February. It is the fourth consecutive month of gains for global stocks, which would be the longest streak since mid-2014.

The rally has been driven by US equities, which make up 53 per cent of the All-World, a 3,077-member index with a market capitalisation of $50 trillion.


Wall Street’s S&P 500 is up 3.8 per cent in February, hitting a succession of record highs, as investors have reacted positively to the fourth-quarter corporate reporting season. The Dow Jones Industrial Average, a price-weighted gauge of 30 blue-chip shares, on Monday recorded a 12th consecutive day of gains, its longest winning streak since 1987.

Asian and European equity measures have also reached multimonth highs of late. Powering the broad bullishness are hopes that an already improving global economy – there are signs of a pick-up in China and Europe – can be given an extra boost by the mooted policies of new US president Donald Trump.

To that end investors are keen to hear Mr Trump’s address to Congress early Wednesday, in which he is expected to detail his fiscal policies, notably infrastructure investment and tax reform.

“News reports suggest that White House officials view this speech as an opportunity for the president to pass the policy baton to Congress, with Trump expected to outline key fiscal initiatives for 2017,” said analysts at RBC Capital Markets. “The consensus is that meaningful tax policy change won’t be enacted until the first half of 2018 and any concrete impact on these expectations from tonight’s speech could be market-moving.”

A perceived lack of clarity surrounding his administration’s economic policies intermittently has hobbled the “Trumpflation trade” that began when he was elected US president in November. Notably the ascent of the dollar has slowed, while government bonds have recovered slightly from their initial sell-off, pushing yields lower.

Fixed income

The yield on the 10-year Treasury, which hit 2.64 per cent in mid-December, was down 1 basis point on Tuesday at 2.36 per cent. The more monetary policy sensitive US 2-year bond yield slipped 1 basis point to 1.19 per cent after data released on Tuesday showed the world’s biggest economy grew by 1.9 per cent annualised in the fourth quarter of 2016.

Traders are pricing in a 48 per cent chance of the Federal Reserve increasing borrowing costs next month, up from 36 per cent just a week ago.

Late on Monday, Dallas Fed president Robert Kaplan said the central bank might need to raise rates "sooner rather than later" to avoid falling behind the curve on inflation.

Helping suppress US yields are the low offerings available from peers. The German 10-year Bund yield was 1 basis point firmer for the session, but still only 0.21 per cent as worries about the euro zone political climate continue to counteract the recent signs of accelerating economic and inflationary momentum.


Currency moves mostly were muted ahead of Mr Trump’s speech. The dollar index – a measure of the greenback against a basket of its peers – was off 0.1 per cent at 101.0 as the euro adds just 0.1 per cent to $1.0598 and sterling eases 0.1 per cent to $1.2429.

The Japanese yen was an outlier, gaining 0.5 per cent to ¥112.07 per dollar. The currency initially weakened against the dollar following the release of data that showed an unexpected contraction in industrial production during January.


US index futures exemplified the market’s cautious mood throughout the session. The pan-European Stoxx 600 was up 0.1 per cent, taking its February advance to 2.7 per cent, while the FTSE Asia Pacific index eased 0.1 per cent for a month’s gain of 2.3 per cent.

Earlier in Asia on Tuesday, Japan’s Topix rose 0.1 per cent and Australia’s S&P/ASX 200 eased 0.2 per cent as banks and miners had a soft day. Hong Kong’s Hang Seng fell 0.8 per cent, but China’s Shanghai Composite was up 0.4 per cent.


Energy prices were soft as they continued to meander within the roughly $53-$58 a barrel range in which they have been stuck since Opec agreed in December to cut production. Brent crude, the international oil benchmark, was down 1 per cent to $55.34 a barrel, while West Texas Intermediate, the US marker, slipped 1 per cent to $53.51.

Gold was up 0.3 per cent at $1,257 an ounce, hovering just shy of three-month highs. – Copyright The Financial Times Limited 2017