Good morning,
Not the end of Trump rally
Markets are still very much in wait-and-see mode this morning; waiting on a press conference from Donald Trump this Wednesday, waiting to see if inflation and the expectations thereof continue higher globally and waiting on political news from Europe to drive risk further.
On Wednesday the President Elect will hold his first press conference since winning the vote in early November. If his Twitter feed can move markets then a 30 minute speaking opportunity with multiple possible subject areas covered definitely could do so too. This week also sees the confirmation hearings for some of Trump’s Cabinet nominees begin and while the Senate and most committees are Republican controlled expect the Democrats to delay as much as they can. If this leads to doubts over the ability of policy to be enacted then that is another reason for the USD to drive lower.
Brexit means Brexit, lower means lower
In the meantime it is the pound that is doing a lot of the weakening this morning. Comments made by the Prime Minister on a Sunday morning political talk show suggested, once again, that she and her government therefore favour tighter controls over immigration than access to the single market. This is nothing new but with 11 weeks or so until the proposed invocation of Article 50 details seem to be few and far between. The PM seemed happier to talk about her domestic agenda and will outline further thoughts on the ‘shared society’ later today in a speech.
Of course, the sterling weakness comes despite a strong run of UK data last week; despite the good news markets are reticent to back a currency with such a political schism still unresolved and further economic fall out further unrealised. That being said, conditions are decent for a little bit of sterling strength this week as a result of weakness elsewhere. Trump could go off the rails when pressed on China, protectionism or the new series of The Apprentice while the euro will have to deal with the latest round of minutes from the ECB (Thursday) and a possible ratings downgrade of Italy (Friday).
Sterling has however fallen to the lowest level since October 11th this morning vs the USD.
Services continue to grow in UK sweet spot
Last month’s ECB meeting was a particularly dovish one; the emphasis that the ECB President put on his comments that inflation will not hit target within the bank’s 2 year forecast horizon was extremely strong and I struggle to remember the last time that Draghi was as explicit as he was about an undershoot of inflation within their forecast period and a subsequent continuation of QE policy.
We will have to wait and see whether more conservative members of the board had explicit disagreements with this stance. They certainly will now given the pick up in inflation in the Eurozone. Some German Sunday papers had imagery of euros being devoured by sharks labelled ‘inflation’ this weekend so you can see what the Teutonic stance is.
The Day Ahead
Today’s data calendar is rather quiet although two speeches from Fed members (Rosengren at 2pm and Lockhart at 7pm) could give dollar watchers something to think about.