Europe
For most of the last few weeks the road for investors in respect of the Trump trade had been a fairly smooth one as equity markets gained on heightened expectations that we could well see a significantly improved fiscal environment. Yesterday this road encountered its first pot hole as US markets dropped sharply in the wake of the latest executive order over immigration over the weekend.
The events of the last 24 hours and the departure of the US Attorney General have served to build up that apprehension and the risks that the investment road could well start to get even rockier with even more potholes, given the intervention this afternoon of US President Donald Trump’s trade advisor Peter Navarro about German debasement of the euro.
While the FTSE100 has managed to hold up fairly well, European markets have slid back as investor uncertainty continues to build over the current shambles surrounding the new US administration.
The early morning resilience that we saw in initial trading was upended this afternoon as the DAX slipped lower in the wake of the Navarro comments and the euro breaking higher towards 1.0800.
The declines have come in spite of some fairly resilient European economic data with falls in the level of German and EU unemployment, to 5.9% and 9.6% respectively.
We’ve also seen better than expected GDP numbers from the EU, which improved to an annualised 1.8%, though most of that appears to have been driven from Spain and Germany, with Italy still a worry as unemployment rises to 12%, and an 18 month high.
A sharp rise in Spanish and EU CPI inflation to 3% and 1.8% respectively is also likely to fuel calls for the ECB to dial back on its current stimulus program, however with EU core CPI prices still relatively stable at 0.9% that call is likely to be ignored for now, but given today’s comments from US President Donald Trump’s trade advisor Peter Navarro about German debasement of the euro this is one debate that is likely to gain a much greater importance as we head towards German elections later this year.
The best performing sectors today has been the basic resource sector as a weaker US dollar push up commodity prices with copper, platinum, silver and gold prices pushing up. BHP Billiton (LON:BLT), Antofagasta (LON:ANTO) and Fresnillo (LON:FRES) have all seen decent gains.
US
US markets opened lower today as US investors got their first chance to react to the sacking of acting US Attorney General Sally Yates, for questioning the legality of the immigration ban, though some weak earnings numbers haven’t exactly helped.
At the time it was quite easy to dismiss last week’s disappointing update from oil giant Chevron (NYSE:CVX), as a one off, however today’s miss from Exxon Mobil (NYSE:XOM) speaks to and oil and gas industry that is still finding life difficult despite the rebound in oil prices. Q4 EPS came in at $0.41c a share well below expectations of $0.70c a share. The numbers weren’t helped by a $2bn impairment charge on some of its gas assets, which reinforces the fear that despite the rebound in prices some companies may be holding on to assets whose book values aren’t properly representative of their market value.
US drug giant Pfizer (NYSE:PFE) also missed expectations after falling short on revenues and profits in its latest Q4 numbers. Profits of $0.47c a share below the $0.50c expected didn’t go down well. The slide in the share price may also be down to the fact that US President Donald Trump is due to meet senior executives of the major drug companies later this morning, in the wake of his criticism of their drug pricing policy earlier this month.
Sports clothing manufacturer Under Armour’s share price has also slid back sharply after missing on the top and bottom line.
On the data from the latest Chicago manufacturing PMI number slumped sharply in January to 50.3, from 55 in December.
FX
Any pretence that the US would be pursuing a so called strong dollar policy appears to have been blown to shreds today after Peter Navarro, one of Donald Trump’s top trade advisors took aim at Germany for implicitly targeting a lower euro in order to give itself a competitive advantage over its main trading partners, sending the US dollar sharply lower. Today’s declines also put the US dollar index on course to post its worst monthly fall since March last year.
While this overlooks the fact that the ECB sets monetary policy for the whole euro area, and not just Germany, this distinction isn’t likely to figure too highly with the new US administration, which seems determined to upset the status quo in any way possible.
Furthermore it also serves to illustrate why Germany has probably done better out of the recent recovery in the euro area, largely down to its lower unit labour costs, relative to the rest of the euro area. This intervention also serves to shine a light on the tensions already in place at the top of the governing council, about the current easing policy and German uneasiness about it.
The pound has lagged behind with some reports suggesting that the decision to bring forward the triggering of article 50 to March 9th may well be behind this.
The Japanese yen has been by far the biggest gainer hitting a two month high against the US dollar after the Bank of Japan left monetary policy unchanged, though they did warn of the uncertainties surrounding a Trump presidency as one of the key policy worries.
Commodities
Gold and silver prices have rebounded strongly on the back of a weaker US dollar as investors become ever twitchier about events being played out at the top of the new US administration.
Crude oil prices have pushed higher on the back of a weaker US dollar as well as news that OPEC oil production in January had come down by 1m barrels a day to 30m barrels a day.
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