Article / 28 February 2017 at 12:39 GMT

Mid-session Europe: Stocks seek direction before Trump speaks

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European stocks sought direction as investors braced to hear from US president Donald Trump about his plans to boost growth in the world’s largest economy. Losses were led by the basic materials, telecom and technology sectors, but industrial and healthcare stocks advanced.

US Treasury yields firmed after Dallas Fed president Robert Kaplan's hawkish comments yesterday were seen raising chances of a March rate hike. 

France's February CPI came out below expectations at 1.2% year-on-year versus 1.5% expected. 

Watchlist
  • US Q4 Preliminary GDP (2.1% exp. q/q) (1330 GMT)
  • US January advance goods trade balance (1330)
  • US January preliminary wholesale inventories (0.4% exp. m/m) (1330)
  • US February Chicago PMI (53.0 exp.) (1445)
Speakers
  • President Donald Trump to address Congress (0200)
              
v
Forex developments

Markets await Trump's speech tonight. His recent speeches have not all been USD-positive. So markets want to see Trump being market-friendly to give the US dollar a boost, which means no protectionist talk.

GBP is flat on the day so far, almost at the same levels as early European hours. GBPUSD is again testing the100-day moving average today at 1.2406, but fails yet again. The magnate we have spoken of at 1.2480/90 has been visited every day since February 3, so we'll start taking note if this recurrence ceases. The most important trigger would be closing below 1.2389 (50% Fibonacci level from the Jan. 16 to Feb. 2 rally). If the pair begins closing below that, the next level we open to is the 1.2294 area (61% Fibo level). Lloyd’s business barometer (strongly correlated to services PMI) rose to +40, which indicates a stronger services PMI on Friday than expected, at 54, which might be spurring GBP bidding.


EURUSD remains in its downward channel from February 2, but pressuring 1.0600. It closed yesterday above the 50% Fibo level from the rally that started January 3  at 1.0585, which technically opens the way for the 1.0643 area (38% Fibo from the same rally). All eyes on Trump's speech.

USDJPY looks heavy again today. Protectionist talk from Trump would probably not be what is needed if USDJPY is to remain above key levels around 111.97 (the 38% Fibo level from the Trump rally starting November 9). There's also an important technical level today at 111.89 (100-day moving average), which was where USDJPY found support on February 3 and 7. Below these levels, it opens to the 109.97 area (50% Fibo level). Higher US yields are needed to drive USDJPY higher. USDJPY has found decent technical resistance in the 112.70 area.


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European stocks sought firm direction as investors prepared to hear from US president Donald Trump about his plans to boost growth in the world’s largest economy. Losses were led by the basic materials, telecom and technology sectors, while industrial and healthcare stocks advanced.

Aerospace and defence shares have also been on the move today, after Trump said he would make a “big statement” on infrastructure spending and that his first budget proposal would include a “historic increase” in military spending. The London-listed shares of weapons maker BAE Systems gained 1.8% on this news. Meggitt jumped 10% and the company said it planned to raise its dividend. Thales tacked on 1.1% as the French defense-electronics company said it expects profitability to rise this year on higher military spending globally.

Elsewhere, metal and mining shares were squeezed. Traders began pricing in a slightly more than 50% chance that the US Federal Reserve will raise interest rates in March. The prospects of higher borrowing costs put pressure on prices for metals and so on miners' stock. In London, Randgold Resources fell 3%, BHP Billiton lost 1.5%, and Glencore gave up 0.7%. Fresnillo fell 2.1%, even as the precious metals miner raised its dividend and posted higher 2016 profits. 

At mid-day, France's CAC 40 was flat, the UK’s FTSE 100 was fractionally higher, and Germany's Dax 30 was off 0.1%. US futures are trading flat before the US consumer confidence and preliminary GDP data release.


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Mid-session Europe is part of TradingFloor's stable of commentary running through from the US close, through Asia to the European session. Click below to keep abreast of all the developments as they happen.

US:        US Market Wrap: Greenback sneakily bid on upbeat Fed comments

Asia:      Morning Report APAC: Markets await Trump address to Congress

Europe: Morning Markets: Strong US data ahead of Trump speech


US Capitol building
US president Donald Trump will hold a major policy speech to a joint 
session of Congress later on Tuesday. Photo: Shutterstock


— Edited by John Acher

The Global sales Trading desk is a multi-asset team providing customised trading solutions

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