Daily Kickstart (King Trump Tanks King Dollar)

It’s “too complicated.”

I imagine that probably sums up Donald Trump’s feelings about a lot of the proposals he hears, but that’s what he told the Wall Street Journal with regard to the GOP’s border tax proposal. “Anytime I hear border adjustment, I don’t love it,” Trump told the Journal, explaining that “it means we’re going to get adjusted into a bad deal. That’s what happens.”

Clearly he has no idea what he’s talking about because those last two statements don’t really make any sense, but be that as it may, his comments along with another soundbite which finds Trump explaining that the dollar is already “too strong,” are causing significant weakness in the greenback on Tuesday.

The machines were quick to jump on the headlines. “Dollar selling accelerated as algorithmic traders reacted to a WSJ interview quoting Donald Trump as saying the dollar was already too strong and that a Republican border tax proposal was too complicated,” a trader told Bloomberg during the overnight session, adding that “as more media outlets, social media picked up story, more algos became aware of it.”

Some folks made the mistake of trying to read something into Trump’s comments. “The key question is whether Donald Trump is referring to the broad dollar or more specifically to the greenback versus the yuan in his interview with the WSJ,” Macquarie rates strategist Gareth Berry explained to Bloomberg. “If his comments referred the broad dollar, then this could be a game-changer,” he mused.

Sorry Gareth, but you’re probably thinking too hard. Trump was likely just firing from the hip like he always does. The idea that the new President is somehow playing FX strategist is laughable. “We won’t know until the full interview text is published, but the market seems keen to sell first now and ask questions later,” Berry went on to say.

Indeed.

The yen rose for seventh straight day. That’s its longest winning streak in five months. O/N vol in cable is still elevated as traders fret over Theresa May’s speech, but sterling did see some relief from on the broad dollar weakness, even as new shorts were initiated around 1.212-30. 

Meanwhile, money market rates in China were up as the O/N repo rate spiked 23bps to 2.4% ahead of the Lunar New Year holidays. That, despite the fact that the PBoC injected the most liquidity since last January on Tuesday. “This is the tightest period before the holidays, as banks start to hoard cash and transfer corporate tax payments, so it’s not unexpected that the PBOC stepped up injections to ensure cash supply,” one analyst said. 

In economic news, UK inflation rose 1.6% (beating consensus) to the highest level since July of 2014. As Bloomberg notes, “Bank of England Governor Mark Carney warned on Monday that rapidly accelerating inflation will put the brakes on consumer spending this year following sterling’s 18 percent depreciation since the Brexit vote.”

(Bloomberg)

European equities were lower across the board ahead of UK PM May’s Brexit speech. 75% of the Stoxx 600 is down.

• Stoxx 600 down 0.4% to 362
• FTSE 100 down 0.3% to 7302
• DAX down 0.7% to 11469
• German 10Yr yield down 4bps to 0.28%
• Italian 10Yr yield down 6bps to 1.85%
• Spanish 10Yr yield down 10bps to 1.33%
• S&P GSCI Index up 1% to 403.7

In Asia, Japanese stocks dropped as the yen gained on safe haven flows tied to Brexit jitters while Chinese equities gained on suspected state intervention coinciding with President Xi’s speech in Davos. “Government-backed funds bought blue-chip shares Monday afternoon, with the aim of steadying the market,” sources told Bloomberg. “China Securities Regulatory Commission is closely watching abnormal moves in stocks, and is conducting special regulatory activities to stabilize the market this week.” Ah, the plunge protection team.

• MSCI Asia Pacific up less than 0.1% to 140
• Nikkei 225 down 1.5% to 18814
• Hang Seng up 0.5% to 22841
• Shanghai Composite up 0.2% to 3109
• S&P/ASX 200 down 0.9% to 5699

Futs are off in the US as markets will get their first chance to price in new information on Brexit coming off the holiday. Oil is higher on the weaker dollar and gold looks to be catching a bid from haven flows tied (again) to Brexit angst.

• S&P 500 futures down 0.4% to 2263.3
• Stoxx Europe 600 down 0.4% to 361.56
• MSCI Asia Pacific up 0.1% to 139.96
• US 10Yr yield down 7 bps to 2.33%
• Dollar index down 0.4% to 100.82
• WTI oil futures up 1.6% to $53.19/bbl
• Gold spot up 1.1% to $1216.54/oz

Happy trading and don’t forget: Donald Trump becomes President on Friday. Yes, this is real-life. It’s really happening.