US Equity Markets surged higher yesterday as we saw the DJIA trade above 21000, gaining 1.45% on the day, the S&P 500 breached 2400 for the first time, closing 1.36% higher on the day, while the NASDAQ 100 gained 1.14%. The continued bullishness is despite a strengthening USD and an increase probability of a March rate hike, which would usually dampen stock returns. Instead, it appears that President Trumps commitment to job creation, infrastructure and tax reform are the driving forces which have kept the indices bid. Asian equity markets traded mostly higher, following Wall Street lead, as we saw the ASX 200 gain 1.3% and the Nikkei 225 enjoy gains of 0.9%.
In Fx, the USD index, a measure of the strength of the USD against a basket of currencies, managed to break above last month’s highs as the dollar strengthens on the back of positive economic data and bullish rhetoric by members of the Fed. The USD could strengthen to January highs and potentially beyond should the atmosphere remain bullish for the USD.
The GBP got hit hard yesterday thanks to disappointing PMI data and instability regarding the Brexit vote and when it will be triggered, also adding to the woes of the GBP are murmurs form Scotland, who are said to be looking to reignite a second vote of independence from the UK. The UK will remain sensitive to both political and economic data, with bulls hoping for some light at the end of the tunnel.
The EUR has also been under pressure but to a lesser extent than the GBP, despite ongoing political turmoil in the EU, with the Dutch elections closing in, in which there is a potential for an anti EU leader to emerge, which would pomp fears of a Dutch exit from the EU, resulting in a severe weakness in the EUR as markets begin to ask; “who next?”.
At this pivotal time of political and economic uncertainties, traders will be on their toes looking for evidence to support a strengthening or weakening of the respective assets. Better than expected economic release will see the respective assets surge as buyer emerge to drive the assets price higher while worse than expected releases will see the respective assets devalued as seller dominate. From a political perspective, any releases which put in doubt stability of a certain region, will see the retrospective regions currency devalued while a more stable climate will see the respective currency strengthen.