European bonds fell and stocks rose led by banks and retailers as surging inflation data prompted investors to switch into reflationary assets even as speculation about ECB tapering has returned. Asian stocks and US equity futures declined. The Yen and gold advanced after Trump’s firing of the U.S. acting attorney general added to concern over the unpredictability of decisions in the new administration.
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.
"Like it or not, this is where we have been all along and a great many people are just now catching up. No matter what Janet Yellen says about the economy, she is talking out the side of her mouth. Internally, the recovery is gone, and it is never coming back."
"We still think that Mr. Bond will have a soft landing this time. In fact, now that the Inaugural is behind us, with all of its ‘Sound and Fury signifying nothing’, Mr. Market will likely undertake a more cerebral evaluation of the likelihood of 4, 5 and 6% US GDP in 2017... A renewed safe haven bid for Mr. Bond and other fixed income assets seems certain before long, as Real Money and commercials have increased their net longs."
President Trump is anything but traditional. That said, one Presidential tradition that Trump may not want to break is celebrating stock market gains because what goes up, at least on Wall Street, usually comes crashing down in spectacular fashion at some point soon thereafter.
"If Trump’s policies work or if they otherwise demonstrate that we are not stuck in secular stagnation, it’s bad for stocks and bonds and good for the economy. If we wind up back in recession, it’s good for bonds and not necessarily terrible for stocks because valuations can stay high, buoyed by low cash and bond rates."
“At market tops, it is common to see what I call the ‘high-five effect’ - that is, investors giving high-fives to each other because they are making so much paper money. It is happening now. I am also suspicious when amateurs come out of the woodwork to insult other investors.”
"We argue the current divergence partly reflects concerns around trade protectionism, which would be associated with lower growth and higher inflation over time, and to a lesser extent the view that central banks will be cautious in tightening monetary policy in the face of higher inflation."
"The best approach is to allow a passive runoff of maturing assets, without attempting to vary the pace of rundown for policy purposes. Even with such a cautious approach, the effects of initiating a reduction in the Fed’s balance sheet are uncertain. Accordingly, it would be prudent not to initiate that process until the short-term interest rate is safely away from the effective lower bound."
With global stock markets basking in the afterglow of Dow crossing 20,000 for the first time, on Thursday they propelled higher in sympathy with the US, as Asia and Europe are trading solidly in the green, as is the dollar which rebounded strongly off a 5 week low.
Although the stock market is giddy from President Trump’s pro-growth policies, there is another constituent not quite so enamored with recent developments...the more Trump pushes on the fiscal accelerator, the harder the Fed will lean on the brake.
We have an economic crisis - centered on the persistent elusiveness of real growth, rather than just monetized debt masquerading as 'growth'; and a political crisis - in which even ‘Davos man’, it seems, according to their own World Economic Forum polls, is anxiously losing his faith in 'the system' itself.