How the markets react to Donald Trump’s rhetoric in his inauguration speech will be key this week. The moves on Treasury yields, the dollar and commodities will all play off this event which will be a key driver in the coming weeks and months. There is little on the economic calendar for the first few days but then the first look at key growth data will take the focus.
Markets have been building up to the inauguration of Donald Trump for several weeks. The early moves of 2017 have seen Treasury yields retracing gains and the dollar unwinding some of its huge run higher since Trump won the Presidential election back in November. The feeling was that equities that had also had a huge run higher, with the S&P 500 up over 6.5%, may be running into a trap of “buy on rumour, sell on fact”. Markets have run up on promises of huge fiscal spending, tax cuts and deregulation. However, in his inauguration speech and subsequent days since, it looks as though the concerns that markets have had about Trump, could easily come to fruition. Markets have feared a protectionist president and Trump’s comments about “protecting borders” and other countries “stealing jobs” alludes to this, whilst vowing to put “America first”. There was little policy detail to speak of (not overly surprising) but it will be the tone that will have markets worried this week. Already over the weekend, Trump has talked about re-starting negotiations over the NAFTA agreement with Mexico and Canada, whilst also vowing to pull the US out of the Trans-Pacific Partnership trade deal. Safe haven flows are beginning to come through once again with the US Treasury yields falling away. If this continues the dollar will continue its corrective move that has been a feature of 2017 so far.