Daily Kickstart (Nervous Markets Weigh Trump Muslim Ban Ahead Of Big Week)

One of the most important things to remember when trading markets (or when living life in general) is to avoid the tendency to ascribe causality.

We’re always looking for the “because”. Indeed we can barely operate without it. Without the “because” there is no press. When was the last time you read a story on one of the main wires that started and ended with something like “well, we really have no idea why X happened.”? Never, that’s when.

But even as the overwhelming tendency to ascribe causality is generally a mistake and can very often lead us astray, correlations are hard to ignore. Hence it’s hard not to attribute this morning’s sea of red screens to jitters over Donald Trump’s decision to go full-racist-retard by (essentially) banning Muslims from entering the United States.

What’s truly incredible about the controversial executive order is that you’d be hard pressed to find anyone who outwardly supports it with maybe the exception of Steve Bannon who, thanks to yet another Trump order, has a seat on the National Security Council. Indeed it kind of seems like Bannon may be the architect of a lot of what we’re seeing from the administration. Now there’s something to be nervous about.

And so, we start the week on shaky footing with losses across Europe and the Nikkei off despite a meandering USDJPY.

The dollar was lower out of the gate Sunday and in keeping with post-election precedent, yields and futs followed the greenback down. Leveraged accounts pared USD longs against the euro and the yen, traders in Asia said consistent with the latest CFTC data.

cftc

We did see a recovery around 3 a.m. as macro names scaled back shorts versus Asian currencies, a trader told Bloomberg. USDJPY and EURUSD 1-week implied vols are elevated going into this week’s trio of central bank meetings. The tenor also captures Friday’s jobs number.  

yen

Here’s SocGen’s take:

The US travel clampdown dominated the weekend’s news and resulted in the dollar being marked down by about 1/2% at the start of Asian trading, since when very little has happened. The US President’s isolationist policies are more likely to be inflationary than anything else and it’s easier to see that affecting sentiment in the Treasury market than the FX market in the first instance. As the week progresses, economic data are likely to be what markets look at, as opposed to the political headlines. And there’s plenty of economics to focus on in the form of personal income and consumption data today, manufacturing ISM, the FOMC meeting on Wednesday, and the January payrolls report on Friday.

And here’s what’s happening in markets around the world:

  • Nikkei down 0.5% to 19,368.85
  • Topix down 0.4% to 1,543.77
  • Sensex down 0.1% to 27,849.56
  • Australia S&P/ASX 200 down 0.9% to 5,661.52
  • Kospi up 0.8% to 2,083.59
  • STOXX Europe 600 down 0.9% to 363.01
  • German 10Y yield rose 2.1 bps to 0.483%
  • Euro down 0.07% to 1.0692 per US$
  • Brent Futures down 0.4% to $55.29/bbl
  • Italian 10Y yield fell 0.7 bps to 2.227%
  • Spanish 10Y yield rose 6.5 bps to 1.652%

Meanwhile, gold erased earlier gains to trade little changed as the dollar pared losses and Brent fell as the crude story remains the same as it ever was. “It’s a bit of the aftermath of the rig data that we saw on Friday,” Hans van Cleef, senior energy economist at ABN Amro told Bloomberg this morning. “It’s the same trading range, stuck between higher U.S. production and lower OPEC output.”

US futs are lower.

  • S&P 500 futures down 0.3% to 2,282.50
  • Brent Futures down 0.4% to $55.29/bbl
  • Gold spot down 0.2% to $1,188.63
  • U.S. Dollar Index up 0.05% to 100.58

Happy trading.

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