Market News & Insights
30 January 2017

Trumpets Hit the Wrong Note

The greenback started the trading week under pressure, then overnight, markets continued to digest President Trump’s executive order to ban US travel from seven Muslim countries. The dollar index dipped 0.2 percent to 100.34 in overnight trade before recovering some .5% but may well find itself under continued pressure as markets await any potential repercussions, as well as more to come as Donald Trump enters his second week in office. The financial markets have taken the news negatively with overnight Asian shares and Wall Street futures both in the red. The US 10 year treasury note also fell as lows as 2.462 percent, but since recovered and now just above Friday’s closing figure of 2.481 percent.

The dollar brushed off Friday’s poor US economic growth figure which slowed more than expected in the fourth quarter, with GDP rising at a 1.9 percent annual rate, and below the 2.2 percent expected figure. While the dollar didn’t looked to be phased by the figure, the weekends announcement along with the increase in civil unrest may start to weigh. Of equal concern will also be Trump’s continued failure to clarify on further details of his economic agenda as he seems more focused on adding more layers to his wall and continuing his protectionist stance which thus far has been USD negative.

We have a string of US economic data out this week, which includes the FOMC statement on Wednesday where markets have priced in a 96 percent chance of Yellen and Co. leaving rates unchanged. We expect they’ll continue to wait-and-see the impact of the first 100 days of the Trump administration before adjusting rates. Markets also aren’t expecting the Fed to raise rates in Q1, but Trump’s yearning for headlines means we may see plenty of volatility in treasuries. Not looking past today’s headline figure, core PCE, which is the Fed’s preferred measure of inflation. Markets are expecting it to edge up in December to 1.7 percent, a better than expected figure here along with increases in personal and income and spending could reignite demand for the greenback.

Another Central Bank who will be divulging their own economic data today is the ECB. Since the eurozone began commentators have been skeptical of its ability to equally manage the monetary policy of its diverse members. Today we will likely see this debate resurface with Germany’s CPI figure expected to hit the 2 percent level, which also happens to be the ECB’s target rate for the entire euro area. The German’s have started to become more vocal around the ECB’s loose monetary policy and with elections here coming up in Q3 of 2017 we may see further pressure however, with the likes of Ireland, Cyprus, Greece and Italy still in negative territory of just above zero, it is difficult to see the ECB’s stance change.