Originally published by Rivkin Securities
Trump has come out swinging in the early days of his presidency, signing a litany of executive orders. Although both the Dow and S&P 500 were down overnight (by approximately 0.6% each), markets are still holding up very well considering the aggressiveness of Trump's policy initiatives. The Dow has dropped back just below 20,000, an all-time record high reached a few days ago. Trump’s protectionist attitude when it comes to trade, risks stifling global trade. All countries benefit from free and open trade and protectionist policies therefore risk harming economic growth. At this stage, there are no indications that the US/Australian free trade agreement is in the crosshairs however nothing regarding Trump is certain at the moment.
The gold price rallied overnight, pushing back towards $1,200 per ounce as worries about the effect of Trump’s policies appear to be supporting gold. As gold is priced in $US, it is also affected (inversely) by the US dollar index which has been steadily falling from its multi-year high set in mid-December, thus providing further support to the gold price.
Bond yields are creeping higher again after having corrected from highs reached late last year. The yield on the US 10-year note is now 2.49%, moving back towards the 2.60% reached in mid-December. Rising inflation expectations appear to be the cause of the move higher although we still do not really know what policies Trump will implement in this area.
Oil slumped overnight with WTI falling $0.49 to $52.68, still well within the narrow range it has been trading since the announcement of the OPEC cuts. At this stage, the market is watching closely to see whether OPEC members will abide by the production quotas they agreed to. Technically the agreement came into force on January 1 and all signatory countries should therefore now be producing at or below their quotas.
Today the Bank of Japan meets to decide interest rates although markets are expecting no change to the current target of -0.1 to 0%. The press conference accompanying the decision will give some insight into the Bank’s future policy intentions.
Data releases:
· BOJ Policy Rate 01:00pm AEDT
· BOJ Monetary Policy Statement 01:00pm AEDT