Markets Today: All shook up

The overnight session has been a tale of two halves, a dull affair ahead of Trump press conference and a volatile session post.

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At his first press conference as president-elect Donald Trump acknowledged for the first time that he believes Russia was behind cyber-attacks aimed at influencing the election, he criticised intelligence officials for leaking unsubstantiated allegations against him and the media for reporting “fake new” and “phoney stuff. Trump also disclosed plans to step down from all positions at the Trump organization with the businesses placed into a trust overseen by an independent ethics officer and managed by Trump’s adult sons (question marks still remain on whether all conflicts of interest have been eliminated). But more importantly for markets, the lack of detail on his stimulus plan along with his remarks on the drug industry and reaffirmation of his intention to build a wall along the Mexican border triggered some volatile moves across asset classes.

There have been winners and losers post Trumps press conference. US Stocks have traded in and out of positive territory reflecting gains in energy shares as oil staged a small rally while pharmaceutical and biotech shares tumbled after the president elected called for “new bidding procedures” for the drug industry. Trump said “We’re the largest buyer of drugs in the world and yet we don’t bid properly and we’re going to save billions of dollars.”

The lack of detail on Trump’s fiscal stimulus and trade policies triggered a rally in US treasuries and weighted on the USD, however in the past hour we have seen a small reversal on these initial moves. 10Y UST rallied from 2.394% to 2.326% post Trump press conference, but now they have climbed all the way back to 2.366%. Meanwhile the dollar index (BBDXY) dropped 1.46% in the first two hours after Trump began to speak, but now it has recovered over half a percent to be down 0.6% on the day.

Looking at currencies in more detail, all G10 pairs have recorded gains against the USD with the AUD leading the way, up 0.94%. The AUD continues to be the best G10 performer year to date, benefiting from USD weakness, a decline of concerns over CNY instability and although commodities performance has been mixed, gains in gold and iron ore have more than offset the softness in coal prices. The AUD is currently trading at 0.7442 after reaching an overnight high of 0.7472. NZD has also performed well, +0.84% and after reaching an overnight high of 0.7088 it is currently trading at 0.7049. GBP is +0.25% after touching a three month low of 1.2036 and the EUR is currently trading at 1.0574 after reaching a low of 1.0454. Overnight night Governor Carney noted that the EU faces a greater financial stability danger than Britain if the country leaves the bloc abruptly.

In EM currencies, MXN touched a new record high of 22.038 as Trump made it clear that he is not softening his stance on Mexico, suggesting he still intends to build a wall and impose border tax on companies looking to invest abroad at the expense of domestic jobs. Meanwhile TRY has come under renewed pressure (-2.5%) after the November’s current account figures showed a $590m deterioration in the deficit.

In other news, NY Fed’s Dudley said that “greater trustworthiness will make it easier for the financial industry to perform its role in supporting economic activity and rising living standards”.

Coming Up

This morning Japan gets it current account figures for November and although the market is looking for yet another surplus in both adjusted and unadjusted terms, relative to October both measures are expected to show a small decline. A weaker yen in November likely contributed to an increase in net income receipt from offshore assets and also likely provided an uplift to exports, however the inelastic demand for oil suggests that a weaker yen also pushed up the value of imports during the month.

The ECB minutes from the December meeting are out tonight and no doubt they will reignite the discussion on whether less can be more or more can be less. The minutes may also reveal to what extent the decision to extend the bond buying programme to the end of 2017 while at the same time reduce the monthly bond purchases from €80bn to €60bn (starting from April) was a compromise (likely) or a unanimous decision.

The Euro zone and Italian industrial production figures for November are also due for release tonight and on both instances it will be interesting to see if the acceleration in activity suggested by PMI surveys has translated into an increase in output.

There are no major data releases in the US, but we have no less than five Fed speakers on the roster. Fed Harker (hawk and voter) speaks on the outlook for the economy in Pennsylvania, Fed’s Evans (dove, voter) and Lockhart (centrist, non-voter) take part in a panel in Florida, Fed Bullard (centrist, non- voter) speaks to the Forecasters Club of New York and Fed Kaplan (Hawk, voter) speaks at the Dallas Regional Chamber. All five are expected to take questions from their respective audiences.

Overnight

On global stock markets, the S&P 500 was +0.13%. Bond markets saw US 10-years -0.54bp to 2.37%. In commodities, Brent crude oil +2.70% to $55.09, gold+0.4% to $1,191, iron ore +1.2% to $80.41, St. Coal +0.8% to $82.15, Met. Coal +0.0% to $195.00. AUD is at 0.7439 and the range since yesterday 5pm Sydney time is 0.7357 to 0.7468.

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