President Trump’s first full weekday in the Oval Office finds markets starting to react to his decisions rather than speculating on what he may do. While laying the ground work for deregulation (75% cut to regulations and streamline environmental approvals for factories) and tax cuts, which can generate long-term benefits, traders have focused on his comments and actions related to trade which could have a shorter term impact.
Specifically, he issued an executive order to withdraw from the Trans Pacific Partnership and indicated he is starting to work toward a border tax. President Trump is to meet with UK PM May on Friday with trade on the agenda. He also is planning to meeting with the leaders of Canada and Mexico although it’s unclear if meetings will be before or after the US formally launches the renegotiation of NAFTA. He also tasked US manufacturers to come with a plan for reviving the sector within 30 days.
Historically, markets have tended to prefer open trade and have reacted negatively in the past to protectionist moves. As an example the 2000-2002 bear market unfolded in three phases. First was the technology crash, and second was the reaction to 9/11. The third and final phase started on the day then President Bush introduced a steel tariff aimed at China. The potential for trade disputes appears to be slowly bringing reality back from the post-election phase.
The potential for political uncertainty has started to send some capital flowing back into defensive havens with JPY and gold posting gains today Interestingly, CAD and MXN also rebounded from depressed levels with traders preferring any talk related to NAFTA over unilateral executive action.
GBP also continues to climb against USD although it was unable to keep pace with the rebounding JPY. Reports that the UK could be starting to lay the groundwork for post-Brexit trade agreements appears to be rattling the EU, where an official indicated they think Britain can talk trade but cannot sign any deals until they are out of the EU. This is a far cry from six months ago when the EU was going around thinking they could punish the UK for daring to strike out on their own and assuming the UK would be isolated. The realization that Britain has other friends and other options appears to be helping reduce Brexit fears and boost GBP. The flip side of this, however, is that as the FTSE
benefitted from the post-Brexit Sterling selloff, big UK stocks are now falling back due to the pound rebound.
Similarly, the rebound in Asia Pacific currencies like JPY, AUD, NZD, and SGD has been dragging on Asia Pacific indices. Today’s trading may be most impacted by the TPP withdrawal, and the ongoing market reaction to President Trump’s decisions to date. Flash PMI for Japan and New Zealand service PMI may also attract some attention.
Tuesday brings more flash PMI reports, but as the week progresses we may also see more of a focus back to individual stocks with a ton of earnings reports on the way from major US companies like DuPont, Boeing, Caterpillar, Chevron, Google, Microsoft and Intel. The NASDAQ finished the day strong with traders anticipating this week’s earnings from big tech. Yahoo! gave traders reason to cheer after the close, beating the street.
Yahoo! $0.25 vs street $0.21
IBM $5.01 vs street $4.88, F2017 operating EPS guidance $13.80 above street $13.74
American Express $0.91 vs street $0.99
Significant announcements released overnight include:
There were no major announcements in North America or Europe today.
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
8:30 am AEDT NZ service PMI previous 57.9
11:30 am AEDT Japan flash manufacturing PMI previous 52.4
8:00 am GMT France flash manufacturing PMI street 53.4
8:00 am GMT France flash service PMI street 53.2
8:30 am GMT Germany flash manufacturing PMI street 55.4
8:30 am GMT Germany flash service PMI street 54.5
9:45 am EST US flash manufacturing PMI street 54.5
10:00 am EST US existing home sales street 5.51M
10:00 am EST US Richmond Fed street 7