Good morning,
Trump making trade waves already
It’s going to get to a point wherein the politics of the world economy calm down from their pitch; that doesn’t look likely to be anytime soon and investors eager to express their desire or dismay at any number of political ructions are using the currency markets as their vehicle so to do.
On his first full day in office Trump started to roll back the liberal, free-trade agenda of the Obama administration by withdrawing the US from the Trans Pacific Partnership. Obama had spent a lot of his 2nd term ‘pivoting’ to Asia and trying to increase US influence in the region. Trump in one fell swoop has dismantled this legacy and simultaneously elevated China to be the one superpower in the region. Indeed, while American workers and Trump supporters may cheer the President’s decision nowhere will the abolition of the TPP be more welcome than in Beijing.
President Xi’s address at Davos was an attempt to portray China as a global superpower and not an insular one and the moves from Washington are exacerbating that. It will now fall to China to put together a TPP trade deal without the US with Australia, New Zealand, Singapore and Japan already reported to be in discussion.
Dollar up, dollar down
Despite saying last week that he wanted a strong dollar, Treasury Secretary Nominee Steve Mnuchin yesterday warned markets on the impact of an overly strong greenback. This comes a couple of days after President Trump told the Wall Street Journal that the USD was too strong against the Chinese yuan. Dollar is a reactive currency now and no longer resembles its safe haven status. As such, the USD has now lost half of its Election Day gains.
Sterling up on trade and Supreme Court expectations
We repeat our guidance yesterday on the Supreme Court decision on Brexit that is due at 09.30 this morning. Friends and contacts within the legal profession expect that the Court will find in favour of the applicants once again and insist that the government is unable to use the Royal Prerogative to trigger Article 50. A non-negligible risk within the judgement will be whether the devolved governments of Scotland, Wales and Northern Ireland also need to vote as the House of Commons is going to do.
We expect a slight pop higher for GBP on the basis of a judgement in favour of the applicants with a further rise should approval from regional governments need to be sought as this would, in all likelihood, delay the triggering of Article 50 beyond the end of Q1.
All things being equal we expect that Article 50 will still be invoked before April 1st.
The Day Ahead
It will be politics that drives things once again today although preliminary PMIs from the Eurozone this morning will likely show increasing inflation pressures.
Have a great day.