"May you live in interesting times," really is a curse; and as Bloomberg's Richard Breslow warns, "I doubt things are going to get any less gripping... Whatever else markets are pricing in, risk premiums appear to be too low."
Last week fell into three memorable parts...
The Trump trades were given a severe test, declared dead and held. A trend isn’t broken until it actually breaks. But nothing lasts forever.
More Fed speeches than you could shake a stick at, including two from Chair Yellen, told us little. They went for unity and upbeat assessments. Debate raged about whether she was more hawkish or dovish than expected. Even one day to the next. Take that as over analyzing. At the end of the day, no one is going to fully internalize a hawkish message nor remotely price three 2017 hikes unless they hear March is at least being debated. Until then, it’s a lot of noise. Thankfully, no speeches are scheduled this week.
And, of course, there was the inauguration. It really was a tale of two cities. While the Dow rose 100 points, you could hear jaws hitting pavements around the rest of the world.
What this week brings, no one knows.
I suspect trading is going to be time-zone specific in the near term as perception of policies, intent and outcomes are going to vary widely by locale. You could easily get into a pattern of risk-off mornings only to be followed by benign closes.
We’ll see more of the hundred-day plan. U.K.’s Theresa May, a vocal critic of campaigner Donald Trump, will fly to Washington on Friday to woo President Trump. Or as it’s been reported, for the two to recreate the Reagan/Thatcher mystique. Where’s Lloyd Bentsen when you need him? Chancellor Merkel is said to be poring over film and speeches to try to figure out just what makes this guy tick.
What To Watch..
- Monday will be the first real test of the market reaction after Trump’s inauguration. And awaiting new tweets. The dollar index closed at 100.74. For the trade higher to stay good, you really don’t want to see 100.25ish give way.
- Tuesday brings euro-zone PMIs, which are expected to be good. This will annoy the Germans and get no response from Draghi. You have your priorities and I have mine. Also the Turkish rate decision, with forecasts all over the map. The lira is going to move on this for sure. That’s no currency for the faint of heart.
- Oh, and don’t miss the long-awaited U.K. Supreme Court ruling on triggering Brexit talks. Sterling is right in-between two good moving averages.
- Thursday brings Swedish unemployment, which I only mention because long SEK is a hugely popular and crowded trade and, so far, EUR/SEK has yet to prove it can stay below 9.50, right where it closed last week.
- On Friday, China closes for a week-long holiday, after a week of no numbers. That seems like a sensible thing to do.