The Honeymoon Is Ending: Angry Wall Street Traders Slam Trump, Warn Next Move Is Lower
Here is the latest economic news. Antichrist Maitreya states bluntly there will be an economic collapse to precede his arrival onto the scene. We are getting close.
It appears that Wall Street's nearly 3 month honeymoon with Trump is ending. Because no matter how much the courts or public pressure force the watering down of Trump’s immigration order, Bloomberg's Mark Cudmore warns that "the long-term damage to Brand USA has been done."
Here is why "trader #1" is angry:
With a few hasty pen scratches, Trump has confirmed that he is impulsive and liable to act without concern for convention or precedent or, it seems, the law. At the margin, the premium for U.S. assets will now be eroded.Put another way, at some point policy uncertainty leaks into actual uncertainty and requires pricing in...
The U.S.’s place at the centre of global financial markets is partially based on the perception that the country generally acts in the logical long-term interests of business and capitalism. The rule of law is strong and you can have faith that your rights will not be unjustly or arbitrarily curtailed.
Trump actions — his willingness to trample the rights of selected classes of people — shatter those well-established assumptions. The consequences may be slow to play out but are manifold. The attraction of the U.S. as a base for wealthy individuals, multinationals and skilled workers has just been marred. A new risk has been introduced.
The message is that, if you choose the U.S., your life could be disrupted at a moment’s notice.
It’s not like this is just one erroneous measure that can be chalked off as an exceptional mistake by Trump. Instead, it’s the icing on the cake of his administration’s first week in power, where it was abundantly clear that protectionism and isolationism are the priority.
Last week, I used the phrase “irrational stubbornness” to describe the market’s determination to buy the dollar in the face of both contrary newsflow and price action. Stubbornness is not a trait that’s closely correlated with profits in markets.
Expect U.S. equities and the dollar to suffer. The framework has shifted negatively, not just in the short-term but long-term as well.
And as Bloomberg's Richard Breslow - or angry trader #2 - adds, "Trump’s certainly not making it easier for investors to stay comfortable with their positions. The legal and moral issues aside, what was the first thing you thought of when you saw the weekend news from the White House? When does my FX salesman get into the office?"
It’s hard not to at least call and make sure there are indeed bids out there. But a pattern of going home with your trend trades on, waiting nervously to see if there’s going to be any weekend firestorm, selling into a low-ball bid Sunday and being forced to pay up for those same assets as the week progresses is a tough scenario for making money.
Especially if you are model-based and haven’t figured out how to program moral outrage as one of the inputs.
If the game changes on you, it requires a change in strategy. For your sanity as well as P/L. So what is likely to emerge? The reverse of what we saw at the height of the European leg of the financial crisis.
Back then it seemed there was an emergency EU summit every weekend. Traders got into the habit of selling risk all week, the news was bad after all. Then on Friday buying some back in case there was that promised news that would save the day. And on Monday putting the risk back out, hopefully on some headline bounce. For a long time it looked like there was indeed faith in the system because weeks seemed to end better than they started.
Now, with risk generally bid, traders may realize that you buy risk during the week, the global numbers are getting better, and then lighten up on Friday. Let him sow some mayhem on Saturday, you’ll be there with your own low-ball bid sometime Monday or Tuesday. Friday weakness that leaves a soured-tone heading home, giving way to trends sneaking back into formation by hump day.
It seems Trump's grace period on Wall Street is finally coming to an end.
Americans Spend More Than They Earn For 9th Straight Month As Savings Rate Tumbles To 2015 Lows
Personal income growth disappointed in December, rising
a less-than-expected 0.3% MoM. Of course, that did not stop Americans
from spending as personal consumption rose 0.5% MoM in December. This is
the 9th month in a row of higher annual spending growth than income growth...
Sadly for all those hyping and hoping for wage growth - it is stagnant again...
Which coupled with the rising inflation means real disposable income growth is its slowest since 2015...
But the need to spend, spend, spend, sends the savings rate tumbling to just 5.4% - the lowest since March 2015.
Sustainable?
Sadly for all those hyping and hoping for wage growth - it is stagnant again...
Which coupled with the rising inflation means real disposable income growth is its slowest since 2015...
But the need to spend, spend, spend, sends the savings rate tumbling to just 5.4% - the lowest since March 2015.
Sustainable?
Global Stocks, Futures Slide On US Protectionism Worries Following Trump Travel Chaos
European, Asian stocks and S&P futures all
drop after traders were left with a sour taste from the potential
fallout of Donald Trump’s order halting some immigration and ahead of
central bank decisions from the U.S. and Japan. Markets in Hong Kong,
China, Malaysia, Korea, Singapore, Taiwan and Vietnam are all shut due
to the Lunar New Year public holiday, leading to a quiet Asian session.
Oil rebounded after sliding as much as 0.7%. Gold was unable to hold
its overnight gains and has dipped into the red to $1,190 after rising
just shy of $1,200 in early trading.
"Concerns on protectionism appear to be rising after President Trump's executive order to restrict immigration," said Adam Cole, head of G10 foreign exchange strategy with RBC in London.
As Bloomberg notes, Trump’s executive order halting immigration from seven predominantly Muslim nations drew criticism from world governments and some of the largest companies, bringing the geopolitical and international trade risks surrounding the new U.S. president into sharper focus. As DB's Jim Reid adds, the domestic affairs of the US hit the headlines all weekend with widespread global criticism and anger over President Trump's immigration executive order.
Not helping sentiment was the veiled hint from last week's GOP retreat in Philadelphia that the much anticipated Trump tax reform may not hit the 2017 calendar at all, and has been pushed back to the spring of 2018.
In addition to the Trump confusion, traders are on edge ahead of two key central bank meetings this week. The Federal Reserve holds a policy meeting on Feb. 1 and the Bank of Japan convenes this week. Neither is expected to change lending rates, though the Fed’s statement will be parsed for any reading on Trump’s impact on the world’s largest economy.
Looking at those markets that were active (and open), the Stoxx Europe 600 Index lost 0.6 percent at 8:22 a.m. in London in a second day of declines. The S&P 500 futures dropped 0.3 percent after the S&P500 gained 1% last week. Japan’s Topix index slid 0.4% led by a drop in banks and exporters. The gauge advanced 1 percent last week, trading near the highest since December 2015. Australia’s S&P/ASX 200 Index lost 0.9 percent, dragged down by technology shares.
After oil initially fell as much as 0.7%, weighed down by the reduced appetite for risk resulting from the immigration curbs and by signs of rising U.S. oil output, crude has since rebounded in a rapid move higher without any fundamental newsflow to justify the bounce. Data from Baker Hughes showed U.S. drillers added 15 oil rigs last week, taking the total to its highest since November 2015. Copper fell 0.1 percent to $5,893 a tonne, with trade also thinned by the week-long new year holiday in China.
The premium investors demand to hold French 10-year bonds rather than German hit its widest in three years after a poll on Sunday showed Fillon, embroiled in a scandal over allegations of misuse of public funds, losing ground to centrist candidate Emmanuel Macron. Both candidates are ultimately expected to beat far-right candidate Marine Le Pen if either faced her in a run-off.
Signs of accelerating inflation in Germany, which is expected to print at 4 year highs upping the pressure on the ECB to taper its QE program, pushed yields on euro zone government bonds higher. French 10-year yields hit a 16-month high in early trade after an opinion poll showed conservative presidential election candidate Francois Fillon, the favorite to win the vote, losing ground. German 10-year yields turned higher and were up 2.6 basis points at 0.49 percent after regional data lifted expectations of a pick-up in inflation in Germany as a whole. Consumer prices rose 2.3 percent year-in-year in Saxony this month. National data due at 1300 GMT is expected to show German inflation rose to hit the ECB's 2 percent target. U.S. Treasury 10-year yields rose two basis point to 2.489 percent. The yield on 10-year Australian government bonds slid 6 basis points to 2.72 percent.
* * *
Bulletin headline wrap from RanSquawk
Top Asian News
European Economic News
In commodities, oil futures dropped 0.2 per% ent. Crude earlier slid 0.6 percent to $52.88 a barrel amid speculation increases in U.S. drilling will boost output and curtail the effects of supply cuts made by OPEC and other producers. Gold lost 0.1 percent to $1,189.9 after rising as much as 0.4 percent earlier.
It’s a busy start to the week in the US with the December personal income and spending reports along with the PCE core and deflator readings. As well as that, we’ll also get pending home sales and the Dallas Fed manufacturing survey.
US Event Calendar
The domestic affairs of the US hit the headlines all weekend with widespread global criticism and anger over President Trump's executive order to halt the entire US refugee program for 120 days, banning all Syrian refugees until further notice and suspending entry for nationals from seven Middle Eastern/African countries for 90 days. The story will likely run and run but will the impact of it spill over into financial markets or will they purely look at the economic implications of a Trump victory and other wider macro issues? It might be interesting to see more responses from Republican members who Mr Trump will need onside for the more direct economic agenda he will soon move on to. While we continue to think a Trump victory likely means higher US growth in 2017 than we would have expected 3 or 6 months ago, we still think volatility will be a feature of the year. It just seems that there are too many uncertainties, unknowns and major policy changes attached to a Trump presidency for it to be a smooth year. Indeed we should note that the VIX (10.57) is at two and a half year lows and within a whisker of post-GFC lows and in reality not far off all time lows. We are comfortably in the lowest percentile of readings of the VIX through history (back to 1987) at the moment so in over 99 days out of every 100 it would normally be higher than this.
This morning the latest update to the weekend headlines is a statement issued by US Homeland Security confirming that all green-card holders from the countries subject to the executive order will still be allowed entry into the US. In addition, three separate federal judges have now sought to block parts of Trump’s executive order temporarily. The news has failed to stem early losses for the Greenback though with the Dollar index currently down -0.30% in the early going in Asia with the Yen (+0.58%), Euro (+0.32%) and Pound (+0.18%) all higher. In equity markets, while a number of bourses are closed for Chinese New Year, the Nikkei (-0.71%) and ASX (-0.83%) are both lower however. Gold (+0.31%) has gained and Treasuries are a touch stronger. Meanwhile US equity index futures are -0.25% in the early going. It’s worth noting that UK PM Theresa May and Germany Chancellor Angela Merkel have been amongst the political leaders verbally opposing and condemning Trump’s immigration order so it’ll be interesting to see how the European session opens up. Apple, Google, Netflix and Facebook have also voiced their own concerns and criticism over the weekend.
Away from Trump but staying on the politics theme, this weekend also saw the result of the French Socialist Presidential Primary. Former education minister Hamon has been announced as the winner with 59% of the votes versus 41% for former PM Valls. As we’ve highlighted previously, polls have suggested that the Socialist candidate will struggle in the first round of the presidential election and will likely be well out of contention for the second round. Our economists have highlighted the increasing momentum for independent candidate Macron who, according to the FT, is sitting in third place in the polls behind Le Pen and Fillon. What might be interesting however is how much Macron benefits from the wider support of left-wing supporters as we approach the May election. One to watch.
In the mean time it's a busy week ahead with US earnings season still in full swing and Europe joining in. In the macro world we have payrolls at the end of the week and central bank meetings from the BoJ (Tuesday), Fed (Wednesday), and BoE (Thursday) alongside plenty of other data previewed in the week ahead at the end. It is also becoming pretty clear that we'll hear a fair amount from the new US administration too to keep us on our toes.
Back to central banks, a year ago yesterday the BoJ unexpectedly cut rates into negative territory for the first time which seemed to kick off a fairly aggressive 6-8 month rally in global government bonds and a flattening of yield curves that only started to reverse around the time of the BoJ's decision at their September meeting to adjust course and target a steeper yield curve and 10 year yield levels instead. One could say that this move 12 months ago was the beginning of the end for the post crisis regime of ever increasingly aggressive monetary policy without any complimentary action elsewhere. The reason being that from this point on it felt that ever looser monetary policy was doing as much (or maybe more) damage than good. The correlation between yields and bank equity was an obvious example as monetary policy was seriously damaging the business model at a time when fundamentals were already under pressure. We felt this damage was posing a serious risk to the European economy in 2017 if left unchecked given the link between the health of the sector and lending in the economy. However the subsequent change in BoJ policy (helped by the ECB taper in December), rises in yields and the re-steeping of yield curves from late summer/early autumn onwards certainly helped us push back our earlier concerns and European banks that were -36% from the start of 2016 to the lows in July have now rallied back +52% since this point and hit 13-month highs on Thursday. Obviously Trump's victory reinforced the trend but the BoJ has been an important macro swing factor in the last 12 months and although this Tuesday's meeting is unlikely to see any policy changes they are still going to be important in 2017 as investors may at some point test their resolve to hold yields as low as they are in the face of notably higher global yields now relative to when they implemented the policy in September. So the BoJ remains very important this year in our opinion.
Before we look at this week’s calendar, first a quick summary and wrap-up of Friday’s session. Much of the focus was on the Q4 GDP report in the US where the data came in a little disappointing with growth at +1.9% qoq annualized versus market expectations for a +2.2% print. In terms of the breakdown, while business investment rose +2.4% qoq and consumption +2.5%, exports pulled back -4.3% while imports rose +8.3% resulting in net exports subtracting 1.7% from growth. It was however also noted that residential investment surged +10.2% during the quarter.
Markets generally pulled back following that data. After 10y Treasury yields peaked at 2.529% in the early going, yields dipped following the data and closed at 2.484% (-2.0bps on the day). Yields did still end the week up +1.7bps. It was a similar story in Europe where 10y Bund yields ended 2.1bps lower on Friday at 0.458% but still +4.0bps higher over the course of the five days. Meanwhile the US Dollar also pared some of the early gains following the data although the Dollar index still closed +0.15%. The Mexican Peso (+1.54%) rebounded following the news of a phone call between Mexico President Nieto and Trump which helped to ease some of the tensions over the border wall debate. On the other hand Sterling (-0.33%) ended slightly weaker despite generally positive headlines from the meeting between UK PM May and President Trump with May confirmed as saying that she was “convinced a trade deal between the US and UK is the in the national interest of both countries”. Elsewhere the S&P 500 (-0.09%) and Dow (-0.04%) both ended a touch lower although the Dow did still hold above the 20,000 level for the third consecutive day. The Stoxx 600 had earlier closed -0.30% and so paring the weekly gain to a more modest +1.05%.
In terms of the rest of Friday’s data, the durable and capital goods report in the US made for fairly mixed reading. Headline durable goods were notably weaker than expected in December (-0.4% mom vs. +2.5% expected) although the core extransportation reading did rise +0.5% mom and in line with the consensus while the prior month reading was revised up to +1.0% mom from +0.6%. Capital goods orders also beat (+0.8% mom vs. +0.2% expected) along with shipments (+1.0% mom vs. +0.5% expected). Finally the University of Michigan consumer sentiment reading was revised up to 98.5 from 98.1 at the final reading. The only data in Europe was the ECB’s December M3 and credit data which were on balanced positive. M3 money supply growth rose to +5.0% yoy (vs. +4.9% expected) from +4.8% while the three month average credit impulse rose one-tenth to +1.6%.
Moving now to the week ahead. We’re kicking the week off in Europe with various January confidence indicators for the Euro area before we then get the first estimate of CPI for Germany in January. It’s a busy start to the week in the US with the December personal income and spending reports along with the PCE core and deflator readings. As well as that, we’ll also get pending home sales and the Dallas Fed manufacturing survey. Tuesday morning starts in Japan where we’ll get employment indicators, housing starts, construction orders and industrial production data as well as the BoJ policy meeting outcome. During the European session we’ll get CPI, PPI and Q4 GDP in France, unemployment in Germany, net consumer credit and mortgage approvals in the UK and Q4 GDP and January CPI for the Euro area. In the US on Tuesday we’ll get the S&P/Case- Shiller house price index along with the Chicago PMI and consumer confidence. Turning to Wednesday, the early focus in Asia will be on China where the official manufacturing and non-manufacturing PMI’s in January are due. During the European session we’ll get the confirmation of the final manufacturing PMI’s for the Euro area, Germany and France as well as a first look at the data for the periphery and UK. In the US we’ll get the ADP employment change reading, ISM manufacturing, manufacturing PMI and construction spending. Later in the evening we’ll of course then get the FOMC rate decision. The data docket is fairly quiet in Asia and Europe on Thursday, however the BoE rate decision and inflation report will be of keen interest. In the US on Thursday we’ll get initial jobless claims and Q4 nonfarm productivity and unit labour costs. We end the week in Asia on Friday with the Caixin manufacturing PMI in China. In Europe we’ll then get the remaining PMI’s (services and composite) as well as retail sales for the Euro area. We then end with a bang in the US on Friday with the January employment report including the all important payrolls print. As well as that we’ll get the final PMI’s, ISM non-manufacturing and factory orders data.
Away from the data the only Fedspeak this week comes from Evans when he speaks on Friday afternoon. Over at the BoJ we’ll get the minutes from the December meeting on Thursday. Meanwhile at the BoE Carney will speak post the rate decision on Thursday. The other big focus this week is earnings with 106 S&P 500 companies scheduled to report accounting for 22% of the index market cap. Notable reporters include Apple, Facebook, Exxon Mobil, Pfizer, Merck and Amgen. In Europe well also get earnings reports from 58 Stoxx 600 companies including Royal Dutch Shell, Roche and Astra Zenaca. Another potentially interesting event this week is tomorrow’s House of Commons debate in the UK on the government’s draft law to trigger Article 50. The debate is set to last two days.
"Concerns on protectionism appear to be rising after President Trump's executive order to restrict immigration," said Adam Cole, head of G10 foreign exchange strategy with RBC in London.
As Bloomberg notes, Trump’s executive order halting immigration from seven predominantly Muslim nations drew criticism from world governments and some of the largest companies, bringing the geopolitical and international trade risks surrounding the new U.S. president into sharper focus. As DB's Jim Reid adds, the domestic affairs of the US hit the headlines all weekend with widespread global criticism and anger over President Trump's immigration executive order.
"Trump always stated these were policies he would implement," said James Woods, global investment analyst at Rivkin Securities in Sydney. "This renews concerns about a trade war with China that would significantly affect both the Asian and the global economy."The story will likely run and run but will the impact of it spill over into financial markets or will they purely look at the economic implications of a Trump victory and other wider macro issues? It might be interesting to see more responses from Republican members who Mr Trump will need onside for the more direct economic agenda he will soon move on to. While we continue to think a Trump victory likely means higher US growth in 2017 than we would have expected 3 or 6 months ago, we still think volatility will be a feature of the year. It just seems that there are too many uncertainties, unknowns and major policy changes attached to a Trump presidency for it to be a smooth year. Indeed we should note that the VIX (10.57) is at two and a half year lows and within a whisker of post-GFC lows and in reality not far off all time lows. We are comfortably in the lowest percentile of readings of the VIX through history (back to 1987) at the moment so in over 99 days out of every 100 it would normally be higher than this
Not helping sentiment was the veiled hint from last week's GOP retreat in Philadelphia that the much anticipated Trump tax reform may not hit the 2017 calendar at all, and has been pushed back to the spring of 2018.
In addition to the Trump confusion, traders are on edge ahead of two key central bank meetings this week. The Federal Reserve holds a policy meeting on Feb. 1 and the Bank of Japan convenes this week. Neither is expected to change lending rates, though the Fed’s statement will be parsed for any reading on Trump’s impact on the world’s largest economy.
Looking at those markets that were active (and open), the Stoxx Europe 600 Index lost 0.6 percent at 8:22 a.m. in London in a second day of declines. The S&P 500 futures dropped 0.3 percent after the S&P500 gained 1% last week. Japan’s Topix index slid 0.4% led by a drop in banks and exporters. The gauge advanced 1 percent last week, trading near the highest since December 2015. Australia’s S&P/ASX 200 Index lost 0.9 percent, dragged down by technology shares.
After oil initially fell as much as 0.7%, weighed down by the reduced appetite for risk resulting from the immigration curbs and by signs of rising U.S. oil output, crude has since rebounded in a rapid move higher without any fundamental newsflow to justify the bounce. Data from Baker Hughes showed U.S. drillers added 15 oil rigs last week, taking the total to its highest since November 2015. Copper fell 0.1 percent to $5,893 a tonne, with trade also thinned by the week-long new year holiday in China.
The premium investors demand to hold French 10-year bonds rather than German hit its widest in three years after a poll on Sunday showed Fillon, embroiled in a scandal over allegations of misuse of public funds, losing ground to centrist candidate Emmanuel Macron. Both candidates are ultimately expected to beat far-right candidate Marine Le Pen if either faced her in a run-off.
Signs of accelerating inflation in Germany, which is expected to print at 4 year highs upping the pressure on the ECB to taper its QE program, pushed yields on euro zone government bonds higher. French 10-year yields hit a 16-month high in early trade after an opinion poll showed conservative presidential election candidate Francois Fillon, the favorite to win the vote, losing ground. German 10-year yields turned higher and were up 2.6 basis points at 0.49 percent after regional data lifted expectations of a pick-up in inflation in Germany as a whole. Consumer prices rose 2.3 percent year-in-year in Saxony this month. National data due at 1300 GMT is expected to show German inflation rose to hit the ECB's 2 percent target. U.S. Treasury 10-year yields rose two basis point to 2.489 percent. The yield on 10-year Australian government bonds slid 6 basis points to 2.72 percent.
* * *
Bulletin headline wrap from RanSquawk
- European equities start the week on the backfront as Europe reacts to President Trump's executive order and firm regional German CPI
- Thin markets saw the greenback being offloaded, but this has only served to give USD dip buyers better levels as EUFt/USD, USD/JPY and USD/CHF are back to rates seen Friday
- Looking ahead, highlights include German regional and national CPI, US PCE, personal spending, pending home sales
- S&P 500 futures down 0.3% to 2,283
- MXAP down 0.3% to 141.61
- MXAPJ down 0.5% to 451.80
- Nikkei down 0.5% to 19,368.85
- Topix down 0.4% to 1,543.77
- Sensex down 0.1% to 27,849.56
- Australia S&P/ASX 200 down 0.9% to 5,661.52
- Kospi up 0.8% to 2,083.59
- German 10Y yield rose 2.1 bps to 0.483%
- Euro down 0.07% to 1.0692 per US$
- Brent Futures down 0.4% to $55.29/bbl
- Italian 10Y yield fell 0.7 bps to 2.227%
- Spanish 10Y yield rose 6.5 bps to 1.652%
- Gold spot down 0.2% to $1,188.63
- U.S. Dollar Index up 0.05% to 100.58
- Kelly Says Green Card Holders Won’t Be Stopped by Travel Ban
- After Chaos at Airports, Homeland Security Says Order to Return
- Trump’s Next Move on Immigration to Hit Closer to Home for Tech
- Starbucks Plans to Hire 10,000 Refugees After Trump Action
- GE to Google Face Uneasy Test of Doing Business Under Trump
- Quebec Mosque Shooting Kills at Least 6, and 2 Suspects Are Arrested
- Delta’s U.S. Grounding Lifted After Latest Computer Glitch
- As Ford and GM Stay Mum on Immigrants, a Detroit Refugee Is Torn
- Goldman’s Blankfein Said to Criticize May on Brexit Plans: FT
- Frontline Confirms Stock-For-Stock Offer for DHT, Buys Share
- Monsanto India 3Q Net Profit Rises; Shares Extend Gains
Top Asian News
- Sony Says It Will Take $1 Billion Writedown on Movie Business
- Toshiba Asset Sales After Chips Spinoff Will Cut to the Bone
- Daiwa’s Net Income Rises on Trading, Return to Profit Abroad
- Chinese Debt-Trap Concern Dismissed by Pakistan as GDP Rises
European Economic News
- Spain 4Q GDP YoY 3.0%, est. 3.0%, prior 3.2%
- Euro-zone Jan. Economic Confidence 108.2, est. 107.8, prior 107.8
- Euro-zone Jan. Industrial Confidence, est. 0.2, prior 0.1
- Euro-zone Jan. Services Confidence, est. 12.6, prior 12.9
- Euro-Area Economic Confidence Surges to Highest Level Since 2011
- Goldman Sees European Stocks Returning Double U.S. Peers in 2017
- QBE Says Not in Talks With Suitors After Allianz Approach Report
- VW Takes Global Sales Crown From Toyota Amid Diesel Crisis
- Novartis Signals Growing Ambitions for CAR-T Cancer Treatments
- Vodafone in Talks to Merge India Unit With Idea Cellular
- Spanish Economy Maintained Growth Momentum in Fourth Quarter
- Merkel Faces Energized SPD as Bavarian Party Backs Re- Election
- May to Meet U.K. Regional Leaders Denied Say Over Brexit
- German Pride Shifts to Frustration in Role as Europe’s Motor
- Fillon Trains Fire on Macron as Scandal Upends French Vote
In commodities, oil futures dropped 0.2 per% ent. Crude earlier slid 0.6 percent to $52.88 a barrel amid speculation increases in U.S. drilling will boost output and curtail the effects of supply cuts made by OPEC and other producers. Gold lost 0.1 percent to $1,189.9 after rising as much as 0.4 percent earlier.
It’s a busy start to the week in the US with the December personal income and spending reports along with the PCE core and deflator readings. As well as that, we’ll also get pending home sales and the Dallas Fed manufacturing survey.
US Event Calendar
- 8:30am: Personal Income, Dec., est. 0.4% (prior 0.0%)
- 10am: Pending Home Sales MoM, Dec., est. 1.1% (prior -2.5%)
- 10:30am: Dallas Fed Manf. Activity, Jan., est. 15.0 (prior 15.5)
- House scheduled to vote on Congressional Review Act repeal of Interior Dept’s Venting and Flaring Rule, and Stream Protection Rule
- Senate to vote on nomination of Rex Tillerson for secretary of State
- Senate Small Business and Entrepreneurship Cmte votes on nomination of Linda McMahon to be administrator of Small Business Administration
The domestic affairs of the US hit the headlines all weekend with widespread global criticism and anger over President Trump's executive order to halt the entire US refugee program for 120 days, banning all Syrian refugees until further notice and suspending entry for nationals from seven Middle Eastern/African countries for 90 days. The story will likely run and run but will the impact of it spill over into financial markets or will they purely look at the economic implications of a Trump victory and other wider macro issues? It might be interesting to see more responses from Republican members who Mr Trump will need onside for the more direct economic agenda he will soon move on to. While we continue to think a Trump victory likely means higher US growth in 2017 than we would have expected 3 or 6 months ago, we still think volatility will be a feature of the year. It just seems that there are too many uncertainties, unknowns and major policy changes attached to a Trump presidency for it to be a smooth year. Indeed we should note that the VIX (10.57) is at two and a half year lows and within a whisker of post-GFC lows and in reality not far off all time lows. We are comfortably in the lowest percentile of readings of the VIX through history (back to 1987) at the moment so in over 99 days out of every 100 it would normally be higher than this.
This morning the latest update to the weekend headlines is a statement issued by US Homeland Security confirming that all green-card holders from the countries subject to the executive order will still be allowed entry into the US. In addition, three separate federal judges have now sought to block parts of Trump’s executive order temporarily. The news has failed to stem early losses for the Greenback though with the Dollar index currently down -0.30% in the early going in Asia with the Yen (+0.58%), Euro (+0.32%) and Pound (+0.18%) all higher. In equity markets, while a number of bourses are closed for Chinese New Year, the Nikkei (-0.71%) and ASX (-0.83%) are both lower however. Gold (+0.31%) has gained and Treasuries are a touch stronger. Meanwhile US equity index futures are -0.25% in the early going. It’s worth noting that UK PM Theresa May and Germany Chancellor Angela Merkel have been amongst the political leaders verbally opposing and condemning Trump’s immigration order so it’ll be interesting to see how the European session opens up. Apple, Google, Netflix and Facebook have also voiced their own concerns and criticism over the weekend.
Away from Trump but staying on the politics theme, this weekend also saw the result of the French Socialist Presidential Primary. Former education minister Hamon has been announced as the winner with 59% of the votes versus 41% for former PM Valls. As we’ve highlighted previously, polls have suggested that the Socialist candidate will struggle in the first round of the presidential election and will likely be well out of contention for the second round. Our economists have highlighted the increasing momentum for independent candidate Macron who, according to the FT, is sitting in third place in the polls behind Le Pen and Fillon. What might be interesting however is how much Macron benefits from the wider support of left-wing supporters as we approach the May election. One to watch.
In the mean time it's a busy week ahead with US earnings season still in full swing and Europe joining in. In the macro world we have payrolls at the end of the week and central bank meetings from the BoJ (Tuesday), Fed (Wednesday), and BoE (Thursday) alongside plenty of other data previewed in the week ahead at the end. It is also becoming pretty clear that we'll hear a fair amount from the new US administration too to keep us on our toes.
Back to central banks, a year ago yesterday the BoJ unexpectedly cut rates into negative territory for the first time which seemed to kick off a fairly aggressive 6-8 month rally in global government bonds and a flattening of yield curves that only started to reverse around the time of the BoJ's decision at their September meeting to adjust course and target a steeper yield curve and 10 year yield levels instead. One could say that this move 12 months ago was the beginning of the end for the post crisis regime of ever increasingly aggressive monetary policy without any complimentary action elsewhere. The reason being that from this point on it felt that ever looser monetary policy was doing as much (or maybe more) damage than good. The correlation between yields and bank equity was an obvious example as monetary policy was seriously damaging the business model at a time when fundamentals were already under pressure. We felt this damage was posing a serious risk to the European economy in 2017 if left unchecked given the link between the health of the sector and lending in the economy. However the subsequent change in BoJ policy (helped by the ECB taper in December), rises in yields and the re-steeping of yield curves from late summer/early autumn onwards certainly helped us push back our earlier concerns and European banks that were -36% from the start of 2016 to the lows in July have now rallied back +52% since this point and hit 13-month highs on Thursday. Obviously Trump's victory reinforced the trend but the BoJ has been an important macro swing factor in the last 12 months and although this Tuesday's meeting is unlikely to see any policy changes they are still going to be important in 2017 as investors may at some point test their resolve to hold yields as low as they are in the face of notably higher global yields now relative to when they implemented the policy in September. So the BoJ remains very important this year in our opinion.
Before we look at this week’s calendar, first a quick summary and wrap-up of Friday’s session. Much of the focus was on the Q4 GDP report in the US where the data came in a little disappointing with growth at +1.9% qoq annualized versus market expectations for a +2.2% print. In terms of the breakdown, while business investment rose +2.4% qoq and consumption +2.5%, exports pulled back -4.3% while imports rose +8.3% resulting in net exports subtracting 1.7% from growth. It was however also noted that residential investment surged +10.2% during the quarter.
Markets generally pulled back following that data. After 10y Treasury yields peaked at 2.529% in the early going, yields dipped following the data and closed at 2.484% (-2.0bps on the day). Yields did still end the week up +1.7bps. It was a similar story in Europe where 10y Bund yields ended 2.1bps lower on Friday at 0.458% but still +4.0bps higher over the course of the five days. Meanwhile the US Dollar also pared some of the early gains following the data although the Dollar index still closed +0.15%. The Mexican Peso (+1.54%) rebounded following the news of a phone call between Mexico President Nieto and Trump which helped to ease some of the tensions over the border wall debate. On the other hand Sterling (-0.33%) ended slightly weaker despite generally positive headlines from the meeting between UK PM May and President Trump with May confirmed as saying that she was “convinced a trade deal between the US and UK is the in the national interest of both countries”. Elsewhere the S&P 500 (-0.09%) and Dow (-0.04%) both ended a touch lower although the Dow did still hold above the 20,000 level for the third consecutive day. The Stoxx 600 had earlier closed -0.30% and so paring the weekly gain to a more modest +1.05%.
In terms of the rest of Friday’s data, the durable and capital goods report in the US made for fairly mixed reading. Headline durable goods were notably weaker than expected in December (-0.4% mom vs. +2.5% expected) although the core extransportation reading did rise +0.5% mom and in line with the consensus while the prior month reading was revised up to +1.0% mom from +0.6%. Capital goods orders also beat (+0.8% mom vs. +0.2% expected) along with shipments (+1.0% mom vs. +0.5% expected). Finally the University of Michigan consumer sentiment reading was revised up to 98.5 from 98.1 at the final reading. The only data in Europe was the ECB’s December M3 and credit data which were on balanced positive. M3 money supply growth rose to +5.0% yoy (vs. +4.9% expected) from +4.8% while the three month average credit impulse rose one-tenth to +1.6%.
Moving now to the week ahead. We’re kicking the week off in Europe with various January confidence indicators for the Euro area before we then get the first estimate of CPI for Germany in January. It’s a busy start to the week in the US with the December personal income and spending reports along with the PCE core and deflator readings. As well as that, we’ll also get pending home sales and the Dallas Fed manufacturing survey. Tuesday morning starts in Japan where we’ll get employment indicators, housing starts, construction orders and industrial production data as well as the BoJ policy meeting outcome. During the European session we’ll get CPI, PPI and Q4 GDP in France, unemployment in Germany, net consumer credit and mortgage approvals in the UK and Q4 GDP and January CPI for the Euro area. In the US on Tuesday we’ll get the S&P/Case- Shiller house price index along with the Chicago PMI and consumer confidence. Turning to Wednesday, the early focus in Asia will be on China where the official manufacturing and non-manufacturing PMI’s in January are due. During the European session we’ll get the confirmation of the final manufacturing PMI’s for the Euro area, Germany and France as well as a first look at the data for the periphery and UK. In the US we’ll get the ADP employment change reading, ISM manufacturing, manufacturing PMI and construction spending. Later in the evening we’ll of course then get the FOMC rate decision. The data docket is fairly quiet in Asia and Europe on Thursday, however the BoE rate decision and inflation report will be of keen interest. In the US on Thursday we’ll get initial jobless claims and Q4 nonfarm productivity and unit labour costs. We end the week in Asia on Friday with the Caixin manufacturing PMI in China. In Europe we’ll then get the remaining PMI’s (services and composite) as well as retail sales for the Euro area. We then end with a bang in the US on Friday with the January employment report including the all important payrolls print. As well as that we’ll get the final PMI’s, ISM non-manufacturing and factory orders data.
Away from the data the only Fedspeak this week comes from Evans when he speaks on Friday afternoon. Over at the BoJ we’ll get the minutes from the December meeting on Thursday. Meanwhile at the BoE Carney will speak post the rate decision on Thursday. The other big focus this week is earnings with 106 S&P 500 companies scheduled to report accounting for 22% of the index market cap. Notable reporters include Apple, Facebook, Exxon Mobil, Pfizer, Merck and Amgen. In Europe well also get earnings reports from 58 Stoxx 600 companies including Royal Dutch Shell, Roche and Astra Zenaca. Another potentially interesting event this week is tomorrow’s House of Commons debate in the UK on the government’s draft law to trigger Article 50. The debate is set to last two days.