Thursday was a bittersweet day for Donald Trump.
On one hand, he managed to revive the dying reflation trade with a single, off the cuff remark about tax reform. Never mind the fact that the comment – made in a meeting with airline officials – was about as vague as vague gets. “We’re going to announce something phenomenal on taxes in the next 2-3 weeks,” Trump reportedly said. It’s almost like he doesn’t even know what taxes are. Which is ironic.
So dollar up, stocks up, yields up. Yay.
On the other hand, the U.S. Court of Appeals for the 9th Circuit rejected the government’s bid to reinstate the President’s immigration ban. Prompting Trump to tweet “see you in court” in all caps. It also elicited the following hilarious taunt from the bleachers:
— Hillary Clinton (@HillaryClinton) February 10, 2017
Friday is all about Trump again. More specifically, FX markets will be closely eyeing a meeting between the President and Japanese PM Shinzo Abe. Here’s what I wrote on Thursday with regard to USDJPY:
Remember, this is all about rate differentials and on that score, things are made extra interesting by the BoJ’s commitment to anchor JGB 10s (yield curve control). When you throw Trump and the whole currency manipulator charge into the mix, you end up with a scenario in which Kuroda is effectively forced into keeping his promise of stepping in to keep 10Y JGB yields from rising too much. If he doesn’t, he’s effectively admitting that Japanese monetary policy is aimed at devaluing the yen (think about it, if the BoJ doesn’t intervene to clamp down yields, it will be seen by markets as a tacit admission that they’re backing off to appease Trump).
“In the interim, Trump’s meeting with Abe will overshadow the short-term fate of the dollar, and versus the yen in particular,” Bloomberg’s Mark Cudmore wrote this morning, adding that “Abe is bringing a load of investment promises which Trump is sure to promote heavily [and] if he does, without mentioning currency manipulation, then USDJPY can have a decent spike higher.”
“The dollar’s downside may be limited because the meeting is unlikely to be harsh, but over the medium term there are more factors against the dollar than are supportive,” Jun Kato, a senior fund manager in Tokyo at Shinkin Asset Management told Bloomberg on Friday. “There is even the risk of a sell-on-fact decline after the summit.”
Here’s where we stand currently:
Meanwhile, oil is buoyant Friday on the back of an IEA report showing OPEC has achieved a record 90% compliance while demand is on the rise.
See if you can guess when that headline hit:
Here’s the full breakdown via Bloomberg:
- OPEC implemented 90% of promised cuts in January, the 1st month of the agreement
- The group reduced output by 1.12m b/d from December to 29.93m b/d last month; Saudi Arabia delivered 116% of curbs promised
- Resilient demand aiding OPEC’s bid to rebalance mkts
- IEA increased 2016 estimates for oil demand growth for a 3rd month, to 1.6m b/d; 2017 growth forecast to decelerate to 1.4m b/d
- World oil inventories to fall by 600k b/d in 1H if OPEC sticks to its agreement; stockpiles in industrialized nations declined for 5 months in a row and fell in 4Q by the most in 3 years, but still remain significantly above average levels
- High stocks explain why oil prices capped in mid-$50s
- IEA didn’t give an full estimate for compliance among non- OPEC members, such as Russia and Kazakhstan, who agreed to reduce supply by collective 558k b/d; agency’s projections assume they will also cut output
- Supply from outside OPEC to increase by 400k b/d this yr after plunging in 2016; gains in Brazil, Canada and U.S.; non-OPEC to pump 58m b/d in 2017
Whatever. Sorry, but anyone long oil right now is reaching. US energy companies raised a record $6.64 billion in equity offerings last month. That should tell you something about what kind of supply is coming online to offset OPEC cuts.
In China, Beijing said exports surged 7.9% Y/y in January versus estimates of 3.2%. Imports reportedly rose 16.7% y/y, against estimates of a 10% rise. The trade surplus was $51.3b (median estimate $48.5b surplus on a range of $25b-$65.8b).
“Overall, the headline trade data from China was good,” Helen Lau, analyst at Argonaut Securities Asia, told Bloomberg by phone. “Exports were stronger than expected to the U.S., to Japan, to Europe, so that’s contrary to everyone’s concerns and fits in with rising PMIs around the world.”
Yes, it does and you can thank the upbeat print for the rally in iron ore, which hit limit up on the Dalian Commodity Exchange.
Needless to say, the stronger dollar and the prospect that the Trump/Abe summit will go off without a hitch pushed the Nikkei sharply higher. Other Asian markets closed green as well. Europe is mixed.
- Nikkei up 2.5% to 19,378.93
- Topix up 2.2% to 1,546.56
- Hang Seng Index up 0.2% to 23,574.98
- Shanghai Composite up 0.4% to 3,196.70
- Sensex unchanged at 28,328.92
- Australia S&P/ASX 200 up 1% to 5,720.61
- Kospi up 0.5% to 2,075.08
- STOXX Europe 600 up 0.09% to 367.13
In the US, we’ll get consumer sentiment at 10, around 30 minutes after stocks are expected to open at record highs. Here’s the full data calendar:
- 8:30am: Import Price Index MoM, est. 0.3%, prior 0.4%
- 8:30am: Import Price Index ex Petroleum MoM, prior -0.2%
- 8:30am: Import Price Index YoY, est. 3.4%, prior 1.8%
- 10am: U. of Mich. Sentiment, est. 98, prior 98.5
- 10am: U. of Mich. Current Conditions, prior 111.3
- 10am: U. of Mich. Expectations, prior 90.3
- 10am: U. of Mich. 1 Yr Inflation, prior 2.6%
- 10am: U. of Mich. 5-10 Yr Inflation, prior 2.6%
- 2pm: Monthly Budget Statement, est. $45.0b, prior $27.5b deficit
- Revisions: Producer Price Index