Amid all the brou-ha about the Trump speech, it's easy to overlook the most important markets development: chances of a March rate hike have jumped to 80 per cent, according to fed fund futures.

That's well up from about 50 per cent yesterday and from 34 per cent less than a week ago.

Yields on US two-year notes have shot up to 1.2919 per cent, their highest in nine years, while yields on US 10-year bonds rose to 2.418 per cent, from 2.358 per cent.

The moves come after key Federal Reserve officials fanned expectations of a rate hike this month, overshadowing a key speech by US President Donald Trump that offered little details on his stimulus.

New York Fed President William Dudley, among the most influential US central bankers, said that the case for tightening monetary policy "has become a lot more compelling."

John Williams, President of the San Francisco Fed, said that a rate increase was very much on the table for serious consideration at the March meeting given full employment and accelerating inflation.

Williams said that raising rates in March, rather than waiting until June, gives the Fed room to raise rates this year more than the three times that most Fed policymakers currently feel would be appropriate.

Investors spent most of the session anxiously awaiting an address by US President Donald Trump, with shares trading listlessly sideways before finishing the day marginally in the red. 

Buying in the banks and modest interest in utilities were not enough to keep the ASX supported, with Telstra weighing heavily on the bourse as it traded ex-dividend. 

The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index slumped 0.1 per cent to 5704.8 points and 0.2 per cent to 5750.9 points respectively, posting their eighth loss over the past nine sessions.

"Earnings season has brought into focus the individual stocks on the ASX, but today Trump is certainly back on the radar," said Stephen Bruce, senior portfolio manager at Perennial Value Management. 

Wall Street futures briefly jumped during his speech, as did the Australian dollar, but both quickly retreated to previous levels as the US President's much anticipated address to Congress offered few details on tax plans or infrastructure spending, both factors in the recent markets rally. 

"He pretty much didn't say anything he hadn't said before so markets have no reason to react overly positively or overly negatively," said Randy Frederick, managing director of trading and derivatives for Charles Schwab.

Telstra shares were the main drag on the ASX. The telco giant makes up 3.4 per cent of the ASX 200's market cap and weighed heavily on the overall bourse; it closed down 0.5 per cent to $4.64. The company traded ex-dividend on Wednesday, meaning the declared dividend belonged to the seller rather than the buyer. 

Crown Resorts also traded ex-dividend and finished the day 5.8 per cent lower to $11.64. 

Shares in retailers Harvey Norman and JB Hi-Fi slipped 5.8 per cent and 2.7 per cent respectively on news that global e-commerce and cloud computing behemoth Amazon plans to accelerate their Australian operation. Investors have begun to price in the risk to local retailers. 

A slight dip in the iron price weighed on Rio Tinto, which closed down 1 per cent with fellow resource giant BHP Billiton not far behind, closing down 0.5 per cent. 

Australia really is the Lucky Country, writes AFR's Philip Baker:

Any talk its luck was running out has been put to one side after the latest set of national accounts.

Gross domestic product rose 1.1 per cent in the December quarter, from the September quarter, when it fell by 0.5 per cent, the Australian Bureau of Statistics said.Rising commodity prices and consumer spending - despite no wage growth - and a decent increase in business investment means the Lucky Country's luck is still holding.

Talk of an income recession of a few years ago has been replaced by a mini income boom as commodity prices enjoyed a healthy rebound.

But it doesn't really mean the economy is going gangbusters.

Annual growth is still just 2.4 per cent, and although that was much better than most economist expectations, it's well below the 3 per cent that the Reserve Bank expects the economy to be growing at by the end of this calendar year.

Average out gross domestic product in the second half of 2016 and the economy has a growth rate of 0.3 per cent.

Furthermore, it looks like consumers dipped into their savings to spend, emboldened perhaps by rising property prices.

Given rising household debt and a lack of a decent pay rise anytime soon - a deadly double that clearly worries RBA governor Philip Lowe - it would seem unlikely that consumers will keep spending at this pace.

Since the global financial crisis, when the savings ratio went from 3 per cent to almost 12 per cent, there has been a gradual fall again as consumers got comfortable that the world wasn't going to end.

In the last three months of 2016, consumer spending rose by 0.9 per cent, thanks mainly to another drop in the savings ratio that now sits at 5.2 per cent.

The savings ratio could keep falling, it's still above where it was in the lead up to the global financial crisis, but it probably won't fall at the same pace as it has over the past few years.

Not only would further falls seem unlikely, it's perhaps not exactly what the RBA would want right now given their concerns around financial stability.

Read more here.

Global investment strategist Ian Harnett is the most bearish he's been since 2006. For the first time in more than a decade he's recommending Australian investors consider bonds over stocks.

The London-based co-founder of investment consultancy firm Absolute Strategy Research, which advises large investment institutions, has called markets better than most.

And Harnett is is no perma-bear. In 2014 he told Australian clients there was a 20 per cent upside for global stocks. In 2015, he remained bullish citing four factors that would push equities higher.  And a year ago, he said it was time to buy banks and miners.

This time, his message is to consider taking profits as valuations are reaching historically excessive levels.

"On a 10-year view, equities will beat bonds but the question is: is the great rotation out of bonds into equities going to start here? And I just don't see how it can."

In the US, the Shiller (CAPE) ratio – or the "cyclically adjusted price to earnings" ratio – is 27 times compared to 10 times in the 1950s, a period when bond rates were also around 2.5 per cent

"Even Mr [Warren] Buffett was on TV saying you could justify equity valuations because bond yields are so low. But the last time bond yields were this low, valuations were very much lower."

Global equity markets, he says, are not being fuelled entirely by Donald Trump-related enthusiasm, but by a cyclical upturn that has resulted from Chinese stimulus, injected in early 2016.

That has created an inventory shortage, which has resulted in a pick-up in trade to match orders. The shortage has also created pricing power.

Here's more on the AFR

A few investor reactions to Trump's speech, mainly courtesy of Reuters. Bottom line is, the speech was neither positive nor negative for markets, the US President is still seen as pro-growth but don't expect a speedy implementation of his plans:

Steve Massoca, Wedbush Securities:

I thought it went pretty well, certainly no land mines or explosions. From an investor's perspective there was no new information, no surprises good or bad. From the perspective of where money goes tomorrow, I don't see what we have learned that's new or different. ... But he burnished his image, so there's a positive there. He's a pro business president so that's a good thing.

Randy Frederick, Charles Schwab:

He pretty much didn't say anything he hadn't said before so markets have no reason to react overly positively or overly negatively ... Would the market have liked details sure, but I don't think it was expecting them. If anything the market might move moderately higher tomorrow. It pulled back moderately today. The uptick in volatility today was a preparation for the potential for a downside move ... It was a little bit of hedging going on before an event that could move the market.

Brian Jacobsen, Wells Fargo Funds Management:

He was surprisingly detailed about what to replace Obamacare with. It's likely Congress will be able to take that up shortly as part of the 2017 budget and then quickly pivot to the 2018 budget which will deal with tax reform. That plan is much less developed, but he has time. Every deduction and credit that would need to be eliminated to lower tax rates in a budget-neutral way has strong defenders. That's how those deductions and credits got there. So, we'll just have to watch and wait to see which special interests President Trump will take on.

Tim Ghriskey, Solaris Group:

It seemed to be a somewhat kinder and gentler Trump. He wasn't attacking individuals like he often does. This remains a very pro-growth agenda and the markets like that, but I didn't hear anything new that would make it necessarily move ahead, except that he stuck to his guns to make his agenda items happen.

Paul Ashworth, Capital Economics:

With Congress getting bogged down by Republican infighting over efforts to repeal and replace existing health care legislation, it will take considerably longer to pass tax reform than we initially thought on election night. There is now a good chance that it won't happen until early next year.  The upshot is that, despite Trump's upbeat assessment this evening, comprehensive tax reform is likely to take another 12 months, if not longer. 

It's a good day for the few economists predicting the RBA could actually consider lifting rates this year.

TD Securities macro strategist Annette Beacher is one and she points out that her case has been bolstered not only by the better than expected GDP report but also: 

1. strong February manufacturing PMI print (59.3)
2. an outsized jump in February house prices (to be +11.7%/yr)
3. Feb Chinese manufacturing PMIs outpaced expectations (official 51.6 and Caixin 51.7)

The RBA already expected a December quarter GDP rebound, and this report likely merely matched existing expectations.

However, other more contemporaneous data such as confidence, PMIs and commodity prices are likely to be firmer than expected, Beacher said.

"We also recently noted the tentative pickup in full-time hours worked, a pre-curser to hopefully better employment outcomes ahead. A more solid labour market is a significant hurdle for the RBA to deliver our expected November hike to 1.75 per cent." 

Financial markets are now pricing in a 20 per cent chance of a rate hike in December, up from 11 per cent ahead of today's data.

US stock futures and the Aussie dollar trimmed their gains as US President Donald Trump offered few details on tax reform or infrastructure spending in his much awaited address to Congress.

Trump pledged to overhaul the immigration system, improve jobs and wages for Americans and once again promised "massive" tax relief to the middle class and tax cuts for companies.

"The focus of the speech seemed to be more on the broad array of his policy themes during the past year, and the need for unity in achieving them, Wells Fargo Investment Institute global market strategist Paul Christopher said.

"However, the speech was short on details and did not even prioritise the president's goals. There was very little mentioned about tax reform, and the infrastructure proposal for $1 trillion in spending is at odds with the more modest proposals in Congress," he said.

Investors had little to grasp, and market reaction during the speech was choppy and directionless. Treasury yields and the dollar drifted lower."

US stock futures pointed to a higher open during Trump's address, although gains shrank as the speech progressed.

Dow Jones futures added 0.1 per cent, after earlier rising as much as 0.3 per cent, after the Dow Jones Industrial Average snapped a 12-day winning streak to close down 0.1 per cent in the prior session.

Overall, Trump's tone was positive and relative calmness of markets reflected his approach to the anticipated speech, said ThinkMarkets seniro analyst Matt Simpson. 

"There were no initial sings of a campaign-style rally, which helped calm markets whilst they waited for the meat to arrive; tax plans and fiscal spending," he said.

Accordingly, reaction in Asian stock markets to Trump's speech was largely muted, with the MSCI's broadest index of Asia-Pacific shares outside Japan down about 0.2 per cent.

The Aussie dollar slipped back to US76.67¢, or roughly where it was before Trump started speaking, after hitting a high of US77.00¢ during the speech.

The local market actually dropped during the speech, falling as much as 0.65 per cent, before trimming losses a bit to be down 0.5 per cent despite stronger than expected GDP data.

As we wait to see what the experts have to say about Trump's state of the union address, here's BusinessDay columnist Adele Ferguson on the ongoing Comminsure controversy:

There's an old saying that you get what you pay for, and in CBA's case it paid Deloitte to "independently" investigate its life insurance division and received a report that found no systemic issues nor misconduct.

Deloitte was appointed to investigate bombshell allegations made by CommInsure's former chief medical officer that the life insurer was putting profits before people.

Its conclusion was that it "did not identify any systemic issues relating to historically declined claims and did not identify any evidence that the current and planned improvements to the claims handling processes are designed in a way that could systemically deliver poor customer outcomes."

It examined 797 declined claims, which represents 20 per cent of denied claims, and "each sampled declined claim was assessed using a process designed by Deloitte with the objective of establishing whether the claim was declined in accordance with the procedures and processes in operation by CommInsure at the time of the decline".

From this, 41 claims were identified and referred to the life insurer to undertake a reassessment of the initial decision to decline the claim.

But it didn't interview the customers or their families. Instead it relied on the files.

Of those claims it found nine customers (about 1 per cent) had benefits paid or increased, with 11 cases still under reassessment.

The former chief medical officer Dr Ben Koh alleged CommInsure was delaying and denying claims, including using outdated medical definitions, and that some claims managers were cherry-picking doctors and leaning on doctors to change their opinions. He also alleged potential tampering of files in the chief medical officer opinion database.

Read more.

Dow futures are now up 60 points as US president Donald Trump continues to speak in front of Congress, as he again talks up tax reform and infrastructure spending. But the ASX has failed so far to catch that bug, as it continues to wallow.

The Aussie dollar, meanwhile, has continued to build on its post-GDP numbers rally and has hit 77 US cents.

The last of a number of Fed officials to speak overnight, St Louis Federal Reserve Bank president James Bullard, said that with its inflation and unemployment goals in sight the US central bank should begin decreasing the size of the mammoth balance sheet accumulated during its battle against the 2007 to 2009 financial crisis.

Maintaining the Fed's current $US4.4 trillion in securities and other assets as it begins to raise its policy rate, Bullard said, means the central bank is in effect pushing up short-term borrowing costs while its asset holdings pull down long-term rates.

That "twist" in the yield curve is something the Fed has not debated as a policy choice, Bullard said, and could be prevented by letting the balance sheet begin to shrink. As it stands the Fed reinvests any Treasury or mortgage holdings that mature each month, maintaining its total stock of holdings. It has said that practice would continue until the process of raising interest rates to a more normal level was "well underway."

"Ending balance sheet reinvestment may allow for a more natural adjustment of rates across the yield curve," Bullard said, and also give the Fed more room to react with new asset purchases in the event a new crisis develops.

"If that's the case, they stop reinvesting the coupons and maturities into the long end of the yield curve which would  place some upward pressure on long bond yields in the US," said Richard Grace, chief currency and rates strategist at Commonwealth Bank. "Because they're no longer there buying and therefore easing rates at the long end."

Bullard said the Fed has achieved its dual mandate - jobs and price stability - which ordinarily strengthens the case for higher rates, but it was the St. Louis Fed's belief that "the low-safe-real-rate regime is unlikely to change in the near term" and that "a relatively low policy rate will remain appropriate".

The Fed has flagged three interest rate rises for 2017, having left rates unchanged at its first meeting for the year. The March meeting takes place March 14-15, and the market is now pricing in a more than 50 per cent chance the central bank will move. The minutes of the January 31-February 1 meeting showed the central bank is confident that hike will come "fairly soon".

Grace said he would not be "terribly surprised" if the Fed hikes this month. "The market's pricing it pretty accurately," he said, noting expectations were at 28 per cent at the start of the year.

"I think that's quite fair, the US data continues to surprise to the upside and the pricing for a Fed rate hike at the March meeting has lifted."

Bullard's call for the balance sheet "runoff" to begin now puts him in the minority, at least publicly. Fed officials have begun discussing the timing and process of balance sheet reduction, and considering whether it needs to remain larger than the few tens of billions of dollars needed to manage monetary policy before the crisis.

President Donald Trump is entering Congress as we speak to the traditional standing ovation.

He is about to speak, but word from the White House is that he will emphasise in his first address to Congress three of the central themes that animated his presidential campaign and are the main thrusts of his early days in office: bolstering immigration enforcement, destroying the Islamic State and revamping the nation's tax code to spark economic growth.

"My economic team is developing historic tax reform that will reduce the tax rate on our companies so they can compete and thrive anywhere with anyone," Trump will say, according to excerpts released by the White House. "At the same time we will provide massive tax relief for the middle class."

He also is seeking to deliver an upbeat, unifying message as a call to action on the nation's challenges that contrasts with the dark vision of "American carnage" sketched in his inauguration speech.

"The time for small thinking is over," Trump will tell his national audience. "The time for trivial fights is over."

Six weeks into his presidency, Trump is under increasing pressure to answer core questions about how he'll deliver on his promises to bring fundamental change to how the government addresses the major issues facing the country. Details on matters such as health-care policy, taxes and the federal budget have been elusive so far, and his prime-time speech could determine whether voters and markets judge Trump as having a firm handle on the job.

It also may affect Trump's ability to persuade Congress to go along with his plans. Even with Republicans in control of both chambers, Trump's already facing dissent on his budget plans and disagreements on tax and health policy.

White House officials who previewed the speech said Trump will argue that executive actions he's signed have already paid off for voters, and that he's ushered in an economic resurgence merely by promising tax relief and a relaxed regulatory state.

"The president will lay out an optimistic vision for the country, crossing traditional lines of party, race, socioeconomic status," White House press secretary Sean Spicer said on Monday. "The theme will be the renewal of the American spirit. He will invite Americans of all backgrounds to come together in the service of a stronger and brighter future for our nation."

The speech will offer Trump a chance to shift the narrative on a presidency that so far has been marked by a freewheeling leadership style and signs of chaos.

While investors in every asset class will be hanging on President Donald Trump's speech to Congress - due to start in 15 minutes - it's those who have furiously bid up equities, in hot-topic sectors like financials, retail and health care, who may have the most on the line.

The oration, carrying all the policy gravitas of a State of the Union address, is expected to touch on budget goals, tax reform and trade. Considering that almost every utterance from Trump has roiled companies and industries over the past few months, swings in equities are a safe bet.

Financial stocks in particular were the big post-election winner in the S&P 500, surging 23 per cent since Nov. 8, including 14 percent in November alone. Investors have been bullish on the prospect of higher interest rates and looser regulations. Trump has specifically proposed a rollback of the Dodd-Frank Act.

"Investors want to see that the economy ranks high on the to-do list," former CLSA analyst Mike Mayo said. "The further up that he talks about the economy, the better it is for banks".

Trump may address how much he wants to spend on infrastructure and how it should be paid for, although he hasn't yet given the proposed measure a strong enough endorsement, Thomas Lee, managing partner and co-founder of Fundstrat Global Advisors, wrote.

Some on Wall Street think the best result for stocks would be for Trump to continue skimping on details. The more that's left up to the imagination, the easier it is for equity investors to convince themselves to continue buying, according to Andrew Sheets of Morgan Stanley.

"You're at the part of a policy cycle where anything is possible -- no compromises have to be made and no disappointments have happened," Sheets, Morgan Stanley's chief cross-asset strategist, said. "In some ways the market might actually like a speech that's a little more vague because it allows everybody to fill in the version of tax reform or tax cuts they have in mind. The more specific it gets about the potential offsets, like border adjustment tax, the more nervous the market could be."

Shares in takeover target Macmahon have surged, following a non-binding heads of agreement with Indonesian miner PT Amman Mineral Nusa Tenggara.

Under the agreement, Macmahon will acquire some assets from AMNT, and AMNT will become a significant shareholder in Macmahon, in a major blow to CIMIC's hostile play for the mining contractor.

Macmahon scored a life-of-mine mining services contract at AMNT's Batu Hijau operation in Indonesia, a copper and gold project formerly owned by US gold major Newmont and Japan's Sumitomo Corporation, according to the AFR.

The contract would be significantly larger than its current biggest contract at AngloGold Ashanti's Tropicana mine in Western Australia.

AMNT owns the mining fleet at Batu Hijau but it is understood it would sell this to Macmahon in exchange for shares in the company at about 20¢ per share, delivering it a roughly 40 per cent stake, the AFR said.

The mining services provider on Monday rejected a takeover offer from construction giant CIMIC, which owns a 23.3 per cent stake in the company, as inadequate and opportunistic.

CIMIC lobbed a final, unconditional takeover bid for Macmahon in January at 14.5¢ per share. Since then it has only marginally increased its stake to 23.34 per cent as of Monday.

Macmahon said the proposed deal with AMNT could be transformational and deliver substantial value to shareholders by increasing Macmahon's scale, operational diversity, revenue, profitability and growth prospects.

Shares jumped as much as 16.7 per cent after coming out of a trading halt and are currently up 13.3 per cent at 17 cents.

Woodside Petroleum's chief executive Peter Coleman has taken a nearly $1.1 million pay cut despite the energy giant posting a surge in profitability for 2016.

Mr Coleman earned a total remuneration of $US6.71 million for the year ended December 31, 2016, down from $US7.55 million the previous year.

The company said it had restructured executive pay after shareholders delivered a so-called "first strike" during its annual general meeting last year, with more than 27 per cent of votes going against Woodside's pay for senior executives.

The economy grew at a faster than expected pace of 1.1 per cent in the fourth quarter, rebounding strongly from the surprise contraction in the previous three months.

Economists had predicted a 0.8 per cent rise, following the 0.5 per cent slump in the September quarter. Over the year, GDP grew 2.4 per cent, which was also well ahead of expectations of 2.0 per cent growth.

Household final consumption expenditure contributed 0.5 percentage points and public capital formation contributed 0.3 percentage points to growth, the ABS said.

The Aussie dollar advanced about two-tenths of a cent to the day's high of US76.66¢.

GDP data due in 10 minutes: the economy is expected to have returned to growth last quarter as exports boomed and consumers and the government spent more, extending Australia's remarkable 25-year run of uninterrupted expansion.

Figures on gross domestic product are forecast to show growth of 0.8 per cent in the fourth quarter, bouncing from a shock 0.5 per cent contraction in the third. Annual growth is expected come in at 2 per cent, according to a Bloomberg survey.

That would mark 102 quarters without recession, a single quarter short of the world record held by the Netherlands.

"Australia looks to have steered clear of a technical recession and, more importantly, it is clear that activity levels have continued to improve in the past couple of months," said Savanth Sebastian, a senior economist at CommSec.

The Reserve Bank is counting on a pick up to around 3 per cent this year and next, thanks in part to surging resource exports and notably liquefied natural gas.

Higher prices for key exports including iron ore and coal had already delivered Australia's smallest current account deficit in 15 years at just $3.9 billion.

Scott Haslem, an economist at UBS reckons that, with prices for iron ore holding strong, Australia could actually record its first current account surplus since 1975 in this quarter.

That should lessen the risk of the country losing its triple A credit rating given S&P Global Ratings cited a reliance on foreign funding as one reason it might downgrade.

"The extent and duration of the spike of commodity prices, and subsequent material improvement of Australia's trade and external position, was largely unexpected," said Haslem.

He noted that when S&P warned about the rating, it had forecast a current account deficit of around 4 per cent of GDP this year. Now it was more likely to be 1 per cent.

The flood of cash from exports was also a big boost to measures of national income and nominal growth.

The impact on incomes was highlighted in data out Monday showing company profits in Australia surged 20 per cent in the fourth quarter, led by a near-50 percent jump for miners.

Bank stocks look about 10 to 15 per cent overvalued given their very low profit growth and high leverage, and are in need of a "reality check", according to Anton Tagliaferro, one of the country's leading fund managers.

"The banks in Australia – which make up almost 30 per cent of the index – are rallying strongly because the US banks are on a tear with all the talk of lowering US regulatory requirements and tax cuts", he told The Australian Financial Review.

"But if you look at the underlying earnings of Australia's large banks, they're not that strong. The Commonwealth Bank result was up 2 per cent, and given there's a booming housing market in parts of Australia and their bad debts are virtually zero, I'm not sure 2 per cent is all that terrific."

"The same goes for the other banks. Credit growth is tepid, margins are under pressure, profits are sluggish and their results have been helped by very low bad debt charges."

Mr Tagliaferro, the founder of Investors Mutual (whose Australian Share Fund which is jointly managed with Hugh Giddy has achieved an impressive return of 13.3 per cent per annum over the past five years) said that local investors should be wary of the optimism surrounding global markets since Donald Trump's surprise electoral victory last November.

Although the Australian sharemarket is trading at its highest level in a year. Mr Tagliaferro noted that "if you look at a lot of the stocks that we hold – good quality, mid-cap companies like Ansell, Mayne Pharma, SkyCity [Entertainment] and Spark Infrastructure – none of them are trading anywhere near their 12-month highs.

"And that reflects the fact that it is still a difficult environment in which to grow profits. The vast majority of companies that we talked to during the profit reporting season are not saying that things are great. They're saying that it's still a tough environment, and that economic growth is not providing an extra spur to lift profits.

Mr Tagliaferro predicted that the Australian market is likely to continue to trade sideways for some time.

Read more at the Fin here.