By Michael McKenna
Uncertainty concerning the presidency of Donald Trump has been a factor in the media sphere ever since the real estate magnate launched his primary campaign back in May 2015, but his November victory over Hillary Clinton was met by a surprise rally in USD, US equities, and particularly shares of Goldman Sachs following his hiring of several GS alumni for his cabinet and inner circle.
Following the latest outing from the Federal Open Market Committee, however, whose accompanying minutes cited “policy uncertainty”, the dollar has tumbled versus a selection of currencies, most notably JPY.
“With USDJPY vulnerable,” says Saxo Bank head of equity strategy Peter Garnry, “we could see some weakness in Japanese stocks on the correspondingly stronger yen”.
The sudden dollar rout, which appears to be due to the concerns expressed in the minutes rather than the relatively hawkish press statement, also sees metals getting a boost, says Saxo Bank commodities head Ole Hansen, as gold ETP outflows slow but remain negative.
In Asia, Saxo Global Sales strategist Christoffer Moltke-Leth notes that CNHCNY spreads are hitting “unprecedented levels” while USDMXN has bucked the weak dollar trend to hit an all time high at 21.62.
In Saxo Bank head of forex strategy John J Hardy’s view, these sudden, early-year moves are likely to calm somewhat as we head further into 2017. Hardy notes that a lot of the sudden shakes and tremors are likely a case of early-year “nerves”, citing Friday’s nonfarm payrolls print as a key data point for the greenback following the post-FOMC rout.
In stocks, Saxo Bank head of equity strategy Peter Garnry says that an analysis of market moves shows that investors would do well to remain sanguine on US financials while strong European macro trends could well offset the recent strength seen in euro versus USD.
The longer-term weakness may well remain in play:
Source: Saxo Bank
Garnry also reports that Tesla is at a crucial “inflection point” as the carmaker flips the switch on its new Gigafactory post-SolarCity.
Ultimately, however, Garnry’s view is that the recent Fed minutes support an overweight positioning on financials in both the US and Europe.
Beyond the greenback, another sharp move has been seen in palladium where US and Chinese manufacturing data lead to a perception that increased demand from carmakers may increase demand for the metal, reports Saxo head of commodity strategy Ole Hansen.
In crude, markets remain rangebound despite markets expecting a 2 million barrel drop in US inventories at 1700 GMT today as Libyan production offsets the cutting trend seen across Opec and non-Opec producers alike.
Finally, Saxo fixed income trader Michael Boye notes that Treasury yields are falling as rate hike expectations from a cautious Federal Reserve dampen heading into Trump’s inauguration.
Early 2017, it would seem, is seeing a reassessment of the anomalous, post-election “Trump rally”, but whether this is nerves, noise, or a market-moving shift in the Trump trade given a tentative Fed remains to be seen.
It’s early days yet, but after the roller-coaster that was 2016, it’s fair to say that markets are dealing with a vast and varied influx of birds, from hawks to doves to the blond-coiffed black swan who surprised the entire world back in November.
Has the Trump rally hit a Yellen wall? Photo: iStock
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