While we once again saw record highs in US stock markets yesterday we also saw a little pause for breath, and a mixed finish ahead of what has been another record breaking week for US stock markets.

European stock markets have been more tempered with only the DAX showing any semblance of a decent performance this week, hitting its highest levels since April 2015, while the FTSE 100 has struggled as a result of a stronger pound.

What has been notable has been the turnaround in bond markets, which have started to resume their downward path once more, as concerns about higher inflation forced yields back up again, in the wake of this week’s executive orders from US president Donald Trump. Rising fears about the implementation of trade tariffs aren’t exactly helping either as ideas about 20% levies on imports from Mexico get bandied about after planned talks between the Mexican president were scrapped over the president’s comments about who would be paying for the building of the wall.

More significantly it’s not just US, UK and German yields that have started to move higher again but also yields across Europe, particularly in countries that can probably least afford it, particularly Italy.

The reflation trade, along with rising political risk appears to have pushed Italian borrowing costs to their highest levels since the summer of 2015, as concerns about a fresh election also prompt caution amongst investors. Italy’s problems are particularly acute given the high level of debt rollovers they have this year, as well as the prospect they may have to raise extra debt to fund their banking bailout.

These concerns about higher inflation has already prompted Bundesbank president Jens Weidmann to follow his colleague Sabine Lautenschlager in reopening the debate about tapering the current QE program, in the wake of German 10-year yields hitting a 12-month high of 0.499% yesterday.

This week’s US economic data has pointed to a decent end to the final quarter of 2016, and a decent beginning to 2017 for the US economy, with the prospect that it could perform equally as well as the UK economy which saw GDP growth for 2016 come in at a respectable 2%, and which actually performed better in the second part of 2016 after the referendum vote, than it did in the first half of the year.

Today’s first iteration of US Q4 GDP will be the final legacy of the Obama presidency, and the economy that he has left for the new incumbent.

How the US economy performs from here will largely be down to Donald Trump, even if Obama laid the foundations. Expectations are for a modest slowdown from the 3.5% growth seen in Q3 to 2.2%.  A large part of this slowdown is likely to be as a result of lower exports, given that the high Q3 number was boosted by a large jump in soybean exports, due to a shortage in South America. This isn’t likely to be repeated, while personal consumption is also expected to come in lower.

On a side note UK prime minister Theresa May is in Washington hoping to knock off some of the rougher edges of the new US president when it comes to some of his recent foreign policy announcements. Initial discussions may also take place on the framework for a future trade deal, which could well strengthen the prime minister's hand in her upcoming Brexit negotiations, particularly if she is able to act as a bridge between the US and the EU.

In the process she will also seek to make strong alliances with senior Republican officials on the off chance Mr Trump doesn’t get to serve his full term.

EURUSD – having failed to overcome the 1.0770/80 area thus far, we’ve drifted back towards the trend line support now at 1.0655 from the lows this year. If we slip below here we could drift back down towards the 1.0580 area, and delay the prospect of a move towards 1.0850.

GBPUSD – the pound has slipped back from 1.2675 as we look to close in on the December highs, just below 1.2800. Interim support lies at 1.2530 while below that the bigger support comes in at the 1.2420 area on any pullbacks. A move below 1.2400 argues for a return to the 1.2250 area.

EURGBP – continues to drift lower with support coming into play at the 0.8445 area, trend line from the December lows at 0.8300. A break below here opens up the prospect of a move towards 0.8300. Pullbacks are likely to find resistance at 0.8570 and 0.8650.

USDJPY – has found support two weeks in succession at the 112.50 area. A move below 112.55 could well target a move towards 111.60. If the current rebound manages to gain ground above 114.80 we could well head back towards 115.60.

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