Markets looking forward to Inflationary pressure

Share Markets:

The trade inspired by Trump's potential inflationary policies continued to come back into vogue, driving US share indices, including the S&P500 and the Dow, to new record highs. Overnight, they rose 0.5% and 0.7%, respectively.

Interest Rates:

Expectations that Trump will implement tax cuts and boost inflation saw bonds sell-off.

Yields on US treasuries rose across the board. US 10-year yields rose 3 basis points to 2.43% - still below their December peak but higher than a year ago.

Australian bond futures moved to a lesser extent. The implied 3-year bond yield edged 1 basis point higher to 1.96%, while 10-year yields were unchanged at 2.74%. 

Foreign Exchange:

The US dollar index rose to its highest in three weeks on expectations that Trump would release a "phenomenal" tax plan.

Euro was also weighed down by concerns over the French presidential election and other political uncertainty across the continent. The stronger US dollar saw the Australian dollar weaken to just below 76.5 US cents, despite stronger iron ore prices.

Commodities:

Oil prices weakened on the stronger US dollar and despite reports that the Saudis had reduced crude output significantly in January.

Gold prices were also under downward pressure from the US dollar, but iron ore prices surged past US$90 a tonne.

Australia:

No domestic data to report.

Japan:

GDP rose by a slightly smaller than expected 0.2% in Q4. This followed an increase of 0.3% in Q3. It was the fourth consecutive quarter of positive GDP growth in Japan. Net exports contributed to GDP growth in the December quarter.

United States: 

No significant data releases, however a NY Federal Reserve survey on consumer inflation expectations rose to its highest since mid-2015.

Expectations for inflation a year ahead rose to 3.0% up from 2.8% previously.



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