It may be true that U.S. President Donald Trump addressed Congress yesterday to discuss numerous plans he intends to implement, but it wasn’t Trump’s commitment to increase defense spending or his request for a $1 trillion investment in infrastructure that got the markets moving. In fact, in typical fashion, Trump outlined his plans broadly without giving real actionable suggestions or timelines for when they would begin implementation, disappointing both traders and voters countrywide.
Following Trump’s blasé speech, it was a combination of statements from key Federal Reserve policymakers that lead to selling in the bond market and send two-year Treasury yields to 1.28 percent, their highest level since December.
In a statement on CNN on Tuesday, New York Fed President William Dudley noted that the case for monetary tightening has become “more compelling” since Trump and his Republican-dominated Congress came into power.
John Williams, San Francisco Fed President added that “a rate increase is very much on the table for serious consideration at our March meeting.” As of Tuesday, traders were expecting approximately a 62 percent chance of a rate hike this month (with some measures calling a 70 percent chance of a rate hike), up over 20 percent since last week.
Market Movers
The dollar traded higher against the yen during Wednesday’s Asian session, hitting 113.16 yen, a 0.35 percent gain. The dollar index was also higher, trading at 101.49 .DXY. Inflation data expected later on Wednesday could provide further indications as to whether a rate hike will be forthcoming, as will Fed Governor Lael Brainard’s speech at 6pm EST. Also out on Wednesday are important ISM manufacturing data and Markit manufacturing PMI reports. Less important releases on Wednesday will include monthly vehicle sales and construction spending reports which will still provide an intimate look at the country’s overall economic health