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From the Floor: Trump an 'ordinary politician' after all — #SaxoStrats

  • Donald Trump's much-hyped tax plan leaves market underwhelmed — Garnry
  • Trump showing he is just 'an ordinary politician' after all — Garnry
  • Tax plan lacking in detail and question marks over who will pay — Hansen
  • Gold holds the $1,264/oz zone as markets weigh geopolitical risk — Hansen
  • Gasoline price slump could see US driver season demand slide — Hansen
  • Shanghai Composite gains in 2017 wiped out as regulators intervene — Bresler
  • CAD recovers some ground after Trump softens NAFTA stance — Bresler
  • Risk premium exits EUR vols after Macron victory — Norup
  • Overnight EURUSD vols at 17% — Norup

By Martin O'Rourke

Desperate times

The short-term hit and the public fanfare has been the oxygen fueling Donald Trump's public life, but if he thought he was going to be able to pull the wool over the market's eyes and gain a big publicity coup to crown his first 100-days in charge, his much-hyped tax plan has not delivered.

Trump's plan to cut corporate taxes from 35% to 15% may have been a headline-grabber but it is not unfolding as the president would have liked.

"There was a lot of hype about Trump's tax plan, but overall there are key points missing , it looks very complicated and it might not be delivered," says Saxo Bank's head of equities strategy Peter Garnry. "Trump can't move the needle in a big way."

"He is beginning to look like an ordinary politician after all."

Garnry points to the shifting positions and backpedaling that has emerged as a dominant characteristic of the first 100 days of the Trump presidency on subjects as diverse as China and Nato as evidence that this might struggle to find its way through Congress.

"With the momentum from the French election fading in the equities rally, we're settling in a tight range and awaiting a major catalyst," says Garnry. "There had been a lot of hope on Trump's tax reform but now we are back to square one and that's the reality that Trump is waking up to now finally."

DAX stalls as markets react with disappointment to the Trump plan

 Source: SaxoTraderGO

Grounded gold

Gold had been feeling some slippage as it moved into the US session Wednesday ahead of the Trump plan announcement, but the disappointment that subsequently pervaded markets helped the precious metal to hold ground at around the $1,264/oz mark.

Gold was at $1,264.24 at 0655 GMT.

"Gold stabilised following the Trump tax plan announcement asd questions were immediately raised over who is going to pay for it while it was also short on details," said Ole Hansen, Saxo Bank's head of commodities strategy. "Gold find support at the $1,264/oz zone and it remains underpinned by the geopolitical risk premium."

"The gold bias remains neutral below $1,292/oz and bearish if it goes below $1,233/oz," says Hansen. "The recent rise in stocks, the [US 10-year Treasuries] yield and a weakening yen could see it weaken if the geopolitical risk fades."

Crude oil jumped initially on the back of Wednesday's EIA report after inventories dropped, but then felt the adverse effects of a further build in gasoline and distillates that is likely to hit oil down the line.

"The risk with that is gasoline prices will start to fall relatively fast compared to crude oil which will bring down margins and see refinery demand start to slow leaving crude oil in the tanks rather than moving to gasoline."

"In essence, the market is shifting the surplus from crude oil to gasoline," says Hansen.

Gasoline has fallen 11% over the last 10 sessions, says the commodities chief. "The market is still testing support at $48.80/barrel but the gasoline demand for US driver season may not be as strong as last year and that is a cause for concern."

No CADding

USDCAD had been on the tear following Trump's imposition of $1 billion worth of tariffs on lumber from Canada earlier this week, but another piece of furious backpedaling — this time on Nafta — by Trump has brought the pair back from the 1.3650 mark to around 1.3550. 

"Trump agreed not to terminate the Nafta agreement and that actually led to a CAD and MXN rally," reports Andrew Bresler from Saxo Bank's Asia hub in SIngapore. "CAD could rally even further as the Nafta agreement is very important to its economy."

Elsewhere in Asia, there is a sharp focus on Chinese stocks as the regulator continues to crank up the pressure on investors.

"This is partly by a crackdown by authorities on wealth management products that risk destabilising local markets as well as a rise in the Shanghai interbank overnight rate putting the frightener on the equity markets," Says Bresler. While that saw the SHCOMP give up all its 2017 gains at one point during the Asia session, the index recovered grouind towards the end of the session.

A volatile day on the SHCOMP
Source: Bloomberg

Election ripples

As might have been expected, the French election outcome whcih sees centrist and red-hot favourite Emmanuel Macron square up to the far right's Marine Le Pen has seeped its way into the FX Options space, particularly among euro pairs.

"There's been a massive correction in euro volatilities after the French election," says Jeppe Norup from the FX Options desk in Copenhagen. "There had been a lot of risk premium priced in but now that Macron has made it through, the expectation and fear for the second round is a lot less as Le Pen has much less of a chance to win now."

The risk reversals now favours Calls after having massively favoured Puts," says Norup. Overnight EURUSD was at 17% ahead of today's European Central Bank meeting which is not expected to deliver much out of the ordinary.

One-month EURUSD shows the risk premium that had been priced in before Sunday
 Source: SaxoTraderGO

And finally...

Trump may not have bee able to effect a boost in his popularity ratings Wednesday which continue to mark him out as the least popular president ever during the first 100 days of anyone's tenure, but he can perhaps take some consolation in the surprise first-quarter performance of his favourite medium of communication Twitter.

"Twitter really shocked the market with a Q1 beat on revenue and monthly active users were also higher and beteer than expected," says Garnry. "Shares were up 10% at one point and ended up 8%."

"This could be turning point for Twitter."
 If i say I'll do it, i'll do it (or not, as the case may be). Photo: Shutterstock

Martin O'Rourke is managing editor at Saxo Bank


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