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From the Floor: Trump nominee Mnuchin swipes USD lower — # SaxoStrats

   • Treasuries, yen rally as Mnuchin warns against strong dollar
   • Mnuchin also raises Chinese trade, currency concerns
   • Asian bourses fluctuate overall as Nikkei weighed down by JPY
   • Turkish rate decision sees o/n USDTRY hitting 60 vols
   • Downside Eurozone PMI surprise could see GER30.I test 11,500: Garnry
   • SAP posts strong Q4 earnings, raises 2017-20 outlook on cloud growth
   • Chinese small cap shares sell off on liquidity crunch
   • EasyJet beats expectations for Q1, 'could extend' outperformance: Garnry

By Michael McKenna

The overnight dollar/yen trade saw the pair dip below 112.60 on the back of US Treasury Secretary nominee Steven Mnuchin’s stating that an “excessively strong dollar” could bring significant near-term headwinds to the US economy.

As Saxo Bank head of forex strategy John J Hardy points out, Mnuchin’s comments did not concern current USD levels but rather the challenges posed by a further appreciation of the currency; traders, however, appear to have taken them as an indication of the Trump administration’s plans for the dollar and reacted by selling USD.

This morning, however, buyers are returning and USDJPY spiked to 113.40 on the European open as investor sentiment edged away from the most immediate and literal take on Mnuchin’s words.

President Trump’s nominee for Treasury Secretary gave his USD comments as part of a series of responses to written questions from senators, with the exchange also featuring some very tough talk on China – something that underscores the widespread perception that Trump feels his country's recent trade history with Beijing has favoured China at the US’ expense.

Stating that he intends to review what he termed the “issue of Chinese currency manipulation”, Mnuchin said that Beijing’s yuan policy represents a “serious infraction” of free trade policy that needs to be “effectively addressed” by the incoming administration.

Today’s Asian session saw market performance mixed with Japanese shares trading lower on the yen’s safe-haven resurgence. The overnight dip in USDJPY, adds Hardy, also saw US Treasury bonds rally and yields sink lower.

At 1100 GMT we have Turkey’s central bank out with a rate decision that analysts generally see as an effort to prop up a faltering lira. According to Italy’s UniCredit, however, nothing short of a 3% hike would be required to see a one- to three-month rally in the lira as the headwinds faced by the currency are simply too strong.

According to Saxo Bank FX Options trader Dan Juhl-Larsen, the high levels of speculation surrounding Ankara’s intent has spiked overnight USDTRY volatility past 60. UniCredit analysts ultimately expect a 75 basis point hike, which they believe will have no real effect on the sinking lira.

USDTRY, 2016-17:

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Source: Saxo Bank 

Turkish president Recep Tayyip Erdogan called on Turkish citizens to exchange their dollars and euros for lira in December in an extraordinary rhetorical gambit that did nothing to halt the TRY’s slide.

In stocks, Saxo Bank head of equity strategy Peter Garnry reports that while today’s Eurozone PMI data are expected to show a continued recovery on the Continent, a downside surprise could see the GER30.I index testing 11,500. The big news, however, concerns earnings season where Garnry sees several recent reports as being worthy of investor attention.

SAP, says Garnry, beat expectations for Q4’16 and raised its 2017-20 outlook on cloud growth, an area where Garnry sees the firm outperforming its rivals – notably Oracle, says Saxo’s equities head – in the cloud sector.

Another relatively strong performer was EasyJet, which posted Q1 revenue, cost and passenger data in line with expectations, a trend Garnry says could well continue. EasyJet shares remain about 45% lower than their mid-2015 highs, making the budget airline a potential recovery play.

Finally, Garnry reports that Samsung’s latest earnings release outperformed on a record showing from its memory chip business, but gave a word of warning about the company’s future outlook.

“Expectations are high for Samsung,” says Garnry, “but analysts are expecting a 30% rise in earnings over the next 12 months… can this continue?”

Samsung shares are already up 20% from the levels seen prior to the company’s high-profile problems with exploding smartphone batteries.

While the Eurozone and Turkey are perhaps the main focuses heading into the European morning, the US session sees Johnson & Johnson, Lockheed Martin, 3M, and Texas Instrument reporting.

There is also, of course, the still-remarkable “Trump factor” lurking in the background of the dollar trade and US assets in general; with the world’s largest economy and functional reserve currency able to turn on a tweet, investors have a new and pugnacious stream of information to absorb beyond the charts and data prints.

All eyes are on Ankara this morning as the Turkish government 
attempts to save its ailing currency. Photo: iStock 

Michael McKenna is an editor at Saxo Bank

Editor’s note: From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios 
TLtrader TLtrader
Also note that when Real Earnings Growth
is below 0, it is input to a coming recession


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