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Video / 19 May 2017 at 7:35 GMT

From the Floor: Trump turmoil tempered — #SaxoStrats

  • Thursday's volatility has calmed absent more damning news from the White House
  • "Will this situation with Trump lead to anything? Probably not," — Hardy
  • Selling interest in gold remains subdued
  • Recovery in equities primarily driven by US biotech — Garnry
  • Allegations Brazil's president engaged in graft saw currency drop as much as 15%
  • "If he can't stay in office then we're back to square one on reform," — Boye
  • 6-9 month extension being discussed by Opec largely priced in — Hansen
  • Iran's presidential elections today are choice between isolation and globalisation
  • Walmart's online sales up 63% year-on-year

By Jack Davies

If they have not fully recovered, the markets appear to have at least calmed following a roller-coaster week in Washington.

There has been much heated talk of impeachment and prosecutions over allegations US President Donald Trump and members of his entourage engaged in collusion with Russia and later attempted to derail investigations into that activity. 

However, while conceding that is too early to call anything with a high degree of certainty, Saxo's head of forex strategy John J Hardy says that it does not seem likely to him that all this furor will come to anything.

"We've not even been able muster more than one day of risk-off as the market quickly wonders whether this situation with Trump is going to lead to anything immediately on the horizon," says Hardy. "I think the answer is probably doubtful, but that isn't the driver behind this move."

Amid the turmoil of these last few days the dollar has taken a tumble against safehaven currency the yen. USDJPY opened today at 111.28 and Hardy notes that the key pivot point to watch out for with the pair is 110-110.5.

Source: Saxo Bank 

A strong UK retail sales report saw GBPUSD pump and dump through and then back below 1.3000. However, "the jury's still out on cable," according to Hardy.

Saxo's head of commodities Ole Hansen notes that selling interest in gold remains subdued amid the current precarious political situation. The precious metal has returned to its 200-day moving average after surrendering 38.2% of its recent gains.

If things are relatively calmer in Washington today, Brazil has stepped into the void to keep things interesting.

Brazilian president Michel Temer has been accused of ordering the bribing of a witness in a corruption probe. Temer has refused to step aside despite the country's supreme court approving an investigation into the allegations.

The scandal rocked the Brazilian Real, seeing it drop as much as 15% during the day and closing down 9%. It will be particularly troubling to Brazilians and investors alike as Temer was elected last August on an anti-graft ticket following his predecessor's impeachment.

Michael Boye on Saxo's fixed income desk notes that renewed and growing investor confidence following Temer's election manifested itself in credit spreads from the impeachment all the way up to Thursday, when news of Temer's alleged impropriety first broke.

"If these reports are to be taken at face value it seems the new president is no better than the predecessor," says Boye. "And what's probably much more important for the markets is that if he can't remain in office we are back to square one in terms of the reform agenda.

Brazil credit spreads
Source: Bloomberg

Meanwhile in the Middle East, Iran heads to the polls today in a presidential election that pits international-facing incumbent Hassan Rouhani against hardline cleric Ebrahim Raisi, whose perspective is decidedly more hawkish and introverted.

Saxo's head of commodities Ole Hansen says that while Rouhani is likely to hold on to his office, should Raisi snatch it from him, the consequences would likely be an Iran that took a more hardline stance towards the West and support for Syria and Houthi rebels in Yemen. 

Should the fundamentalist take the top job today, Hansen believes his policies would likely provide support to oil prices. That would come as a relief to many Opec nations, including (somewhat perversely) Saudi Arabia, which is currently engaged in a proxy war with Iran via Yemen.

At a meeting next Thursday, Opec is expected to announce a deal to extend production cuts by 6-9 months. The deal has largely already been priced in by the market, according to Hansen.

"Opec is once again in a situation where they have to deliver in order to maintain this recent positive price action we've had in the market," says Hansen, who warns that an extension in the second half of the year will have a greater impact than it did in the first six months, when demand tends to be lower.

"If you look at the producers, Saudi Arabia not least, they have to take a substantial chunk of their exports away for domestic use. So, if they cannot increase production over the summer they'll have to reduce exports and that will obviously be felt in the global market," Hansen adds.

Amid the week's high anxiety, there were some pieces of good news. Saxo's head of equities Peter Garnry says that what recovery there has been in US share prices has been driven largely by biotech firms, which have had a good week.

Garnry also notes that US supermarket chain Walmart has experienced a bumper year, with year-on-year online sales up 63% as US consumer confidence figures reach their highest levels since 2001.

For the time being, however, Garnry maintains a short-term negative outlook on equities.

A hardline cleric taking the reins in Tehran could be bad news for regional stability, but perversely good news for flailing oil-producing nations. Photo: Shutterstock 

Jack Davies is a consulting editor at TradingFloor

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