Friday saw Donald Trump inaugurated as the 45th President of the United States, and thus far markets have not warmed to the occasion. US stocks had initially started Friday on firmer footing but managed to sell off into the close and although still closing higher on the day, futures are now looking to open lower today, while the USD also faced selling across the board with the USD index dropping to six week lows this morning and down over 1.2% from Fridays highs, and more notable below the 100 day ema for the first time since Trump was voted in back in November. European shares were similarly lackluster on Friday, with major bourses closing off their biggest weekly loss since before Trump was voted in also, so it would appear some of the shine has gone from the new world order.
Let’s be realistic however, it’s hardly Trump’s fault, the so called “Trump rally” we’ve seen across markets since the vote was somewhat surprising in that there was little substance behind the surge in risk appetite. Let’s also not forget that the large number of Fed speakers who crossed the wires throughout last week also had notes of caution in their current view, while most see rates rising several times, this is based on expectations of strong growth in the US. In Europe the ECB were also notably cautious on Thursday but the selloff in risk and the ECB’s promise to stand behind the Eurozone and do whatever is necessary, means the single currency still stands out as a favorite when risk aversion takes hold, helping the euro maintain some limited strength. GBPUSD is up over 4% from last Mondays lows, PM Mays assurances to markets that Brexit would be orderly has provided some support for GBP, or perhaps the fact it appears parliament will have the last word is what is really providing the assurances.
The selloff in USD overnight comes on the back of weaker US yields and a Barron’s article over the weekend suggesting Trump will favour a softer USD. We have been arguing against USD strength in recent months partly based on this view from Trump, and also on the argument that we need to see a near perfect economy to match rate hikes expectations. While some from Trump’s team point to the fact that in the longer term a stronger USD is more beneficial to the US, its near term strength is seen as a barrier especially when looking at trading counterparts like China and Europe, where the USD sits around record highs. We still have a lot to see from Trump, markets may show further concern should Trump continue to avoid the big issues of policy and economics, and focus on his personal spats with the press, opposition and even his intelligence agencies. With focus on data this week the big hitters towards the end of the week are durable goods and GDP figures for December, although manufacturing and home sales data will also take attention from tomorrow on. Today will likely be focused on what big issues will Donald Trump look to tackle on his first week.
GBP has rallied to start the week, news over the weekend Trump will meet with PM May to discuss trade has been greeted with sterling positivity, GBPUSD breaking above last week’s highs before running into some selling resistance around 1.2465 area. This is a big deal for the UK, given Obama’s stance that the UK would be to the back of the line for trade talks, a new agreement with the US would certainly play favourably for the post Brexit UK. The supreme court is due to rule on the parliaments role in Brexit, given may has already stated they would get a vote on the process, she just might already suspect what way this ruling will go. Carney speaks on Wednesday while Q4 GDP is due on Friday. Any indication the economy is growing faster than estimated will see GBP look towards highs above 1.2700. EURGBP is looking to press back below .8600 but for now that levels holds, a break back below .8580 are really turns this pair short term bearish once more, with recent lows towards .8300 back on the radar.