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DACA Schoen: Full Week Ahead Preview

All eyes on (geo)politics. And Canada. Of course.

If last week was any indication of what to expect as we plunge further into year two of the Trump presidency, well then this week should be a real “treat”.

The U.S. will celebrate Martin Luther King, Jr. Day on Monday and in case you might have missed it, Trump set the stage for that last week when, at an event honoring Dr. King, President “stable genius” ended up having to dodge questions from reporters about whether or not he’s a racist.

So that’s fun. A President who, just a day earlier, allegedly (and by “allegedly” we mean “definitely“) called the entire continent of Africa a “shithole”, regaled reporters with his version of what King stood for and then, once he finished explaining (and this is a quote from the speech that came just before the clip shown above) how America “holds so dear [the] self-evident truth that no matter what the color of our skin, or the place of our birth, we are all created equal by God,” the people in attendance demanded to know if he is in fact a white supremacist.


On Sunday night, he tried (again) to dispel the notion that there’s a bigot occupying 1600 Penn.

The whole “shithole” debacle is playing out alongside multiple other boondoggles, which is characteristic of this administration – they just bounce from one crisis to the next as the train flies ever further off the goddamn tracks. For one thing, Trump has started a feud with the only mainstream media outlet that still supports him because, according to him, the Wall Street Journal misquoted him when he was explaining how he might one day have a “good relationship” with the “short and fat”, nuke-wielding child despot in  Pyongyang.

And then there’s DACA and the looming threat of a government shutdown. The whole “shithole” thing emanated from a bi-partisan attempt to get the President to listen to reason on immigration. Needless to say, “listening” isn’t Trump’s strong suit which means “listening to reason” is a non-starter. On Sunday morning, Trump took to Twitter to declare DACA “probably dead” despite the fact that a federal judge in California just temporarily blocked his attempt to end the program, forcing USCIS to resume receiving renewal applications. In other words, the ultimate irony here is that DACA is actually less dead than it was two weeks ago.

The government is funded through Friday and would partially shut down if funding isn’t extended. Democrats are demanding protections for undocumented immigrants or, as Trump calls them, crack-pushin’, job-stealin’ rapists. He’s pushing the whole “merit-based” system line, but really, he just wants that fucking wall and not because he even cares about border security, but rather because he shrieked about it so much on the campaign trail that he made other people care about it, and now he needs to make good on what was always an absurd promise in order to avoid pissing off the base he whipped into a xenophobic frenzy.

I know all of that sounds bad, but remember, Trump is a “very stable genius”, so it should all work out fine. All we need to do is give him a cheeseburger and plop him down in front of a giant flatscreen:

Meanwhile, everyone is supposed to continue to pile into risk assets as though none of the above is happening inside the Beltway.

“US HY began 2018 with the strongest start in 5 years, with spreads compressing 30bps through January 9th,” BofAML notes, adding that “this latest leg of outperformance helped spreads compress to 333bps, 2bps tighter than the previous post-crisis low of 335bps reached in June 2014.”

Stocks are of course running wild, having risen eight out of nine trading days in 2018. The S&P is now sitting more than 11% above its 200-day moving average, a state of affairs last seen in 2013:


For its part, the dollar is in deep shit. Recall the following annotated chart which documents the greenback’s recent trials and tribulations coming off the worst year since 2003:


Between the hawkish ECB minutes and the BoJ’s paring back 10-25Y JGB purchases, the policy convergence narrative is back in play. Here’s Barclays:

The USD bounce proved short-lived, as ECB rate expectations re-priced following the release of hawkish December minutes. We expect the ECB to adjust its forward guidance in April, terminate QE in September, and commence with a first 20bp depo rate hike in December. This is consistent with trend EURUSD appreciation this year and introduces upside risks to our near-term forecasts as markets front-load tightening expectations. The BoJ, too, is expected to join the group of normalizing G10 central banks later this year. We have upgraded our Japan macro outlook and tweaked our BoJ view. We expect it to shift its YCC target sector from 10y to 5y (at 0%) in Q3, while retaining NIRP through 2018. We see higher JGB yields and bear steepening pressures strengthening from Q2 with 10-20y sectors underperforming. The shift in market expectations supports our view for JPY appreciation in H2 18.


We’ll get the BoC this week, which is all kinds of interesting considering the NAFTA drama that unfolded last week.

For their part, Barclays sees a dovish hike as upbeat data apparently outweighs NAFTA uncertainty. Citi recently changed their call recently and now sees a hike as well. And here’s Goldman:

Data since the December meeting have surprised significantly to the upside; activity data have been stronger, core inflation has risen closer to target, and labor market slack has continued to rapidly decline. Even prior to these data releases, Governor Poloz noted in a speech last month, “[the Governing Council is] growing increasingly confident that the economy will need less stimulus over time.” We believe that confidence could only have grown further since mid-December.

Therefore, we expect the BoC to hike rates at the January meeting. The language in the statement and accompanying MPR will likely acknowledge the positive data surprises in the last six weeks, yet explicitly acknowledge ongoing uncertainty stemming from US trade policies and emphasize the need for a continued cautious policy stance.

Of course the authority on all matters BoC is the man who throws bacon into his girlfriend’s vegetable stir-fry, so if you want the latest on Canadian monetary policy, Canadian econ, and/or Canadian bacon, you should probably tune into Luke’s Twitter feed:

Let’s see, what else? Oh, it’s “super Thursday for EM” with four central banks on deck (Turkey, South Africa, Korea, Indonesia).

Additionally, we’ll get the China data deluge (GDP, IP, retail sales and FAI). As usual, “stability” and “resiliency” will likely get tossed around a lot once the data hits, barring some kind of oops moment that finds Beijing forgetting to fudge the numbers. For what it’s worth, consensus on the GDP print is +6.7% Y/Y. The context is interesting coming as it does on the heels of two major stories out of China last week with the sidelining of the CCA factor and the hint that SAFE may be thinking about diversifying its reserves away from USD assets.

China aside, it’s a relatively light week on the data front, so at least we’ve got that going for us in terms of hoping for no “surprises.”

In short: all eyes on (geo)politics. And Canada. Of course.

Full calendar via BofAML




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