US: Today markets will be paying great attention to the political backdrop - Rabobank

Michael Every, Head of FMR at Rabobank, suggests that today is undeniably yet another session where markets should be paying great attention to the political backdrop.

Key Quotes

“First, the upcoming US federal budget will see a proposed 10% (USD54bn) increase in defence spending, alongside cuts in entitlement programs. From a purely fiscal point of view that looks neutral-ish at first glance. However, a 10% surge in defence spending is clearly a signal of something significant against today’s increasingly tense global backdrop. It arguably matches the 1930’s (and 1980’s) meme that many media are suddenly discovering; at the very least, it is a likely growth driver for US industry, which the durable goods orders report yesterday shows is still struggling on a core basis.”

“Second, markets will be closely focused today – tomorrow morning Asia time - on Trump’s State of the Union address to Congress, which will be an opportunity for the new administration to flesh out its near-term legislative agenda. Following January’s fiery “America First” inauguration speech, are we likely to hear more of the same today in more concrete form? It’s not unprecedented to be downbeat in this speech, as in 1975 President Ford said “the state of the Union is not good: Millions of Americans are out of work... We depend on others for essential energy. Some people question their Government's ability to make hard decisions and stick with them; they expect Washington politics as usual”; and in 2002, President Bush mentioned the “Axis of Evil”. What will today bring regarding health, tax, and trade in particular?”