Global attention was focused on the executive orders of the newly minted US president, foremost of which was a travel ban on 7 countries. The move was almost universally decried, was legally challenged and evoked a surprising strong response from within government itself. Notably, Trump summarily fired the acting Attorney General Sally Yates after she defied the order replacing her with Dana Boente who swiftly countermanded Yates order.

It is dawning on investors that Trump’s campaign promises and threats will be carried out. Or at least he will try. Focus is likely to return to whether Congress will be acquiescent or whether it will support President Trump’s policies.

Investors are well advised to try to look beyond the headlines and focus on the material impact of policies on companies’ fortunes and macroeconomic variables.

Macro:

US GDP growth was slightly weaker than expected, however, the underlying details of the data indicate a strong economy.

The PBOC raised interest rates for its MLF signalling a change in policy stance. The central bank appears to be reigning in its liquidity operations both to materially slow the pace of credit creation and to signal to the economy its policy stance.

Equities:

Equities began well with US benchmarks making historical highs before a ban on travellers entering the US from selected countries and the resistance to the ban reversed sentiment.

A similar pattern in the USD transmitted the turbulence to European and Asian markets.

Bonds:

Treasuries seem to be consolidating with the US 10 year treasury around the 240, 250 level.

JPY and EUR duration are selling off due to stronger economies and rising inflation.

Credit spreads across IG and HY only ground tighter. We believe that this is a durable trend and that bonds will have a good year. The management of duration will be key in holding on to those gains, however, as the base curves are buffeted by developments in the political sphere.

Commodities:

Gold has had a good start to the year on inflation fears and policy uncertainty from the new US president. Trump’s selective travel ban added to the turbulence and is driving the yellow metal higher. Expect more policy battles which will continue to support gold.

Oil has been conspicuous in its loss of volatility these last 2 months. This is probably what the Saudi’s seek, a stable and gently rising oil price. The US rig count continues to surge, which should pressure WTI. If a trade war materializes between the US and Mexico, the Brent WTI spread could widen significantly to pre 2014 levels.

Week ahead:

Jan 29

  • Japan retail sales

Jan 30

  • Spain GDP
  • Eurozone business climate, consumer sentiment, industrial sentiment
  • Germany CPI, HICP
  • US Core PCE, personal income, personal spending, pending home sales
  • Japan real household spending, unemployment, industrial production

Jan 31

  • BoJ MPC, outlook report, policy statement, Kuroda press conference
  • UK consumer confidence
  • Australia business conditions and confidence, private sector credit
  • France CPI, HICP
  • Italy unemployment
  • Eurozone flash HICP, GDP, unemployment
  • SKorea IP, exports and imports
  • US Case Shiller home prices, Chicago PMI, consumer confidence

Feb 1

  • FOMC meeting
  • European manufacturing PMIs
  • US ADP employment, ISM mfg PMI,

Feb 2

  • BoE MPC
  • Italy CPI, HICP
  • US unit labour costs

Feb 3

  • European Services and Composite PMI
  • US non farm payrolls, average hourly earnings, private payrolls, unemployment, ISM non mfg PMI