From the Floor: Trump backing himself 'into a corner' — #SaxoStrats#SaxoStrats
• Disappointment to build as dollar enters correction phase — Jakobsen
• Trump has reverted to campaigner mode as he struggles to execute policy
• Feb 28 speech could be key for setting eventual dollar direction — Hardy
• US 10-year Treasuries yields turned back at 2.5% — Boye
• Peripheral bonds buoyed by ECB minutes signal — Boye
• UK January retail data could show if Brits have been on pre-trigger spree — Hardy
By Martin O'Rourke
Toys and prams
It was a meltdown for US president Donald Trump Thursday after an extraordinary press conference where he lambasted the mainstream for perpetrating "very" fake news. How that compares to ordinary fake news is anyone's guess but the president is clearly feeling the heat.
"I think it shows that Trump is at the end of a cycle in terms of from having the initiative on executive orders as part of his business now approach to going back to being a campaigner," says Saxo Bank's chief economist, Steen Jakobsen. "Basically he is back on the pedestal of talking himself into a corner from which is own team then have to spend the next 24 hours unwinding."
"The Trump euphoria is dissipating."
That was reflected throughout the markets complex as classic risk-on assets — gold, bonds and yen — all attracted a wave of buying and the seemingly inexorable equities push gave way to a sea of red with only Dow Jones able to buck the trend.
USDJPY suffers after a wave of yen buying
Jakobsen anticipates a weaker dollar will ultimately ensue with a pivotal period from February 28 to March 18 which begins with a speech from Trump and ends with the meeting between finance ministers and central bankers shortly after the next Federal Open Market Committee meeting.
"Trump's speech is likely to outline his plans for tax reform and health care," Saxo Bank's forex chief, John J Hardy says. "It will either result in a disappointment or return in the market to pro-growth policies."
"Dollar is backed up in this 1-2 day risk-off move as the Yellen testimony effect fades away and this should favour currencies like AUD if it continues," he says.
Jakobsen warns investors not to underestimate the rising political risk to markets and points out that the inflation rise in the US has been underpinned by an effective 82% oil price rise year-on-year that will fizzle out to just 5% by the time we get to May.
"The base effect on inflation means that a lot of people are going to get disappointed," he says. "Oil is also likely to weaken having hit pretty formidable resistance at $55/barrel."
WTI oil unable to break $55/b resistance and that will impact inflation
Source: Saxo Bank
With just 11 days to go until Trump's next big speech, momentum is running counter to senate speaker Paul Ryan's efforts to get the cross-border tax up and running, which could also throw a spanner in the works for the president's big tax reform plans.
"Ryan is struggling to enable that cross-border tax and this is very important for Trump's tax plan," says Jakobsen. "It is intended to raise $1 trillion in revenue and allow Trump to fulfil his campaign promise of a corporation tax at 15%. Most people see this more likely to be at 25%."
Just a minute
Or not just any old minute if you are one of the beleaguered peripheral economies on the edge of Europe after the European Central Bank minutes Thursday hinted at capital key adjustments.
Portugal, Spain and Italy all responded accordingly with the Italian 10-year yield back to 2.17% from an alarming 2.4% ten days ago.
The spread between French/German 10-year yields also came into 66.57 basis points from that near 75 peak earlier in the month on the back of fears that Marine Le Pen might be able to take advantage of the travails of her political rivals to have a real shot at the presidential elections in April/May. That fear has dissipated. For now.
Bunds meanwhile look likely to make another run at 164 as safe-haven buying rises.
French/German 10-year yield spread back to 66.5
Key UK retail sales data for January is out this morning at 0930 GMT and it could be very revealing as we head into the final six weeks before the Brexit trigger deadline passes.
"There is the feeling that the public brought forward a lot of spending, especially on big ticket items, in response to the weakening in sterling," says Hardy. "I think we need to keep an eye on sterling crosses for reaction."
Eyes on London for key retail data for January this morning. Photo: Shutterstock
Martin O'Rourke is managing editor at Saxo Bank