- "We have seen a remarkable U-turn in markets [since Trump's win]" — Moltke-Leth
- Conciliatory victory speech emphasises growth, stimulus, tax cuts
- President-elect not likely to force Federal Reserve chair Yellen to resign
- Pharmaceutical share rally likely overdone given Trump populism — Garnry
- "The rise in yields is not compatible with the current risk rally" — Hardy
- Sterling resurgent versus euro as populist fears centre on Italian referendum
- "EURUSD likely to probe new lows, 1.06 possible" — Hardy
- Combination of Trump, Fed rate hike likely to half EM rally
It is perhaps apocryphal, but there is a wonderful progression of headlines
from France’s Le Moniteur Universel
that describes Napoleon’s escape of from exile and advance on the capital.
It begins with “The Anthropohagus has quitted his den”, progresses through “The Monster has slept and Grenoble” and “The usurper is moving on Dijon” and concludes with “His Imperial majesty arrived yesterday evening at the Tuileries, amid the joyful acclamation of his devoted and faithful subjects”.
I bring this up only because it perfectly illustrates world markets’ reaction to yesterday’s upset presidential victory by Donald Trump. In the run-up to his victory, and as it seemed increasingly likely, USDMXN soared, gold rocketed skyward, and S&P 500 futures dove for the bottom of the sea.
One day on, however, and Saxo Global Sales head Christoffer Moltke-Leth reports on today’s Global Morning Call that “markets have put in a remarkable U-turn” as risk rallied in the Asian session on the back of increasing sentiment that Donald Trump may not be the harbinger of collapse that many feared.
“Yesterday we saw futures put in a major rally as Trump struck an inclusive tone in his victory address, emphasising tax cuts, pro-growth policies, and economic stimulus.”
At the height of the pre-Trumpslide fears, Moltke-Leth reports that the chances of a Federal Reserve interest rate hike in December fell as low as 40% but Saxo fixed income trader Michael Boye reports that they were again at a healthy and hale 72% prior to today’s European open.
But what does this mean? After all, as Boye notes, bond yields are surging with the two-year US Treasury yield breaking 2% yesterday evening (CET).
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Source: Saxo Bank
“A rally in risk appetite and a rally in bond yields are not compatible,” says Saxo Bank head of forex strategy John J Hardy, adding that asset markets have been “pumped up” by low yields, and the greenback as well.
"We have the Fed’s Bullard out this afternoon, but as far as the US central bank goes, Hardy’s view remains that “a December hike is essentially a done deal”. Adding to this perception is the fact that president-elect Donald Trump has apparently backed off his vow to remove chair Janet Yellen, allowing some room for continuity despite the “black swan” nature of Trump’s victory.
In stocks, Saxo Bank head of equity strategy Peter Garnry reports that healthcare shares have gained on the back of Trumps’s victor, which is primarily due to Clinton’s stated plans to increase drug price regulation. This may be overblown, Garnry cautions, as Trump is anything but a conventional Republican – he is more of a populist or civic nationalist – and has himself emphasised the need for lower medication costs.
In earnings, we saw AstraZeneca miss BIGLY (we are incorporating certain Trumpisms into our vernacular in preparation for the new regime) on revenue, which came in in at $5.7 billion versus $5.95bn expected.
Today’s calendar has Nvidia and Disney reporting after the New York closing bell.
Finally, and quite aside from the trials and triumphs of Donald John Trump, Hardy reports that sterling, and particularly EURGBP, is one to watch as Europe heads into its own populist firestorm with the Italian referendum coming up on December 4 and the French presidential election next spring.
Will Italy and France follow in the US’ footsteps, refusing the calm (so long as you do not live in North Africa or the Middle East) technocracy of the post-Soviet era in favour of the slings and arrows of an outraged populace? Or will Trumpism prove a step too far for a continent that largely gave up (read: was forced to give up) on such brash imaginings just over one century ago?
"We have the best movements, people, don't we? Just the best.
Five-star movements." Photo: iStock
Editor’s note: From the Floor takes advantage of TradingFloor.com'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