Trump's protectionist tone weakens US markets

Share Markets:

In US trade the stockmarket rose in the morning then fell in response to the protectionist tone of President Trump's inauguration speech.

In the speech Trump focused more on protectionist trade policy, with less time given to infrastructure spending.  The Dow rose 0.5% and the S&P 500 and the Nasdaq lifted 0.3% for the session. 

Interest Rates:

US government bond yields rose earlier in the session, but began to fall during Trump's speech, to finish the session lower.

Yields fell on concerns fiscal spending may be delayed after Trump adopted a populist tone in his speech. For the session, the yield on the 10-year US government bond fell by 1 basis point to 2.47%.

The yield on the 2-year US government bond fell by 3 basis points from Friday morning to close at 1.19%. 

San Francisco Fed President Williams (a non-voter this year) repeated his call that the Fed needs to reduce monetary stimulus before the economy overshoots and the Fed has to "slam on the brakes".

Foreign Exchange: 

The US dollar index rallied into the NY morning but fell back to finish down 0.4% on the day.

The Euro finished stronger against the US dollar. EUR/USD bounced off lows around 1.0630, oscillating during the Trump speech and closing just above 1.07.

The Yen also strengthened against the US dollar. USD/JPY rolled over from a London high of 115.37 to a low of 114.24 in the NY afternoon, closing at 114.62, watching US yields and equities.

Sterling fell following the release of weak UK retail sales data, but gained against the broadly weaker US dollar later in the session.

The Aussie dollar finished little changed from Friday morning, versus the US dollar.

AUD/USD fell in line with US dollar gains in the London morning, from 0.7560 to a low of 0.7517, then drifted higher to trade around 0.7562 at the time of writing.

NZD/USD slid under 0.7200 after the NZ close, as far as 0.7129, later trimming losses to 0.7170 as the US dollar faded. AUD/NZD bounced from under 1.0500 to currently trade around 1.0548.

Commodities:

The oil price strengthened as OPEC and other producers agreed on a way to monitor compliance on agreed oil production cuts. The oil price fell by US$1.10 to US$52.40 per barrel.

Australia:

HIA new home sales rose a solid 6.1% in November, although it followed an 8.5% decline in the previous month.

The number of new homes sold remains elevated, and should continue to encourage a healthy amount of housing construction. 

China:

The Chinese economy grew at an annual rate of 6.8% in the December quarter, higher than the 6.7% expected by markets.

It puts average growth over 2016, very comfortably within the government's target growth of between 6.5%-7.0%.

It has been reported that China's growth target will be lowered to 6.5% in 2017, and suggest that the government's focus will shift back towards reigning in credit and reform of the inefficient state-owned enterprise sector.

Other indicators were mixed, but mostly suggesting buoyant economic activity. Industrial production grew 6.0% in the year to December, slightly below the 6.1% growth expected by markets.

Fixed asset investment was also weaker than expected, growing at 10.9% in the year to December. Meanwhile, retail spending picked up from an annual rate of 10.8% to 10.9% in December.

The data further supports the notion that the economy continues to rebalance away from investment and industry and towards consumer spending.

United Kingdom:

Retail sales (excluding auto fuel sales) were weaker than expected, falling 2.0% in December.

This followed a downwardly revised increase of 0.2% in November (previously reported as a 0.5% increase).

For the year to December, retail sales (excluding auto fuel) rose by 4.9%, down from an increase of 6.4% in the year to November and defying consensus expectations for a lift to 7.5%.

Price rises (given a lift in UK inflation following the Brexit vote and fall in the pound) and unseasonably mild weather likely weighed on retail sales.

UK Chancellor of the Exchequer Hammond said on Friday that "the currency depreciation is now feeding through into inflation which will increasingly affect consumer behaviour during this year."

United States:

There was no US economic data overnight, with investors focused on President Trump's inauguration speech.


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