So what happens next? Whither risk assets in the week ahead? Who knows! That’s the fun of it, right?!
There’s no goddamn telling how things will play out over the next several trading sessions because over the holiday weekend, the President of the United States literally accused one of the most important companies in America of defrauding the Post Office, said one of the nation’s most important newspapers should be forced to register as a lobbyist, and threatened to end NAFTA because apparently, there are “caravans” of illegal immigrants invading from the south.
In case it isn’t clear enough, all of that is bizarre in the extreme and it comes at the worst possible time both in terms of tech stocks and in terms of delicate trade negotiations.
Trump has seemingly undercut the recovery tech stocks staged on Thursday to close the quarter by effectively confirming what his spokesperson(s) spent two days denying (i.e. that he is indeed pondering some kind of action against Amazon) and also cast further further doubt on NAFTA, thereby making the U.S. seem like even less of a reliable negotiating partner than the country seemed like last week following the announcement of the new tariffs on China.
That’s not to say investors won’t simply ignore his weekend rantings, it’s just to say that he most assuredly didn’t do anyone any favors with his Saturday and Sunday shenanigans.
Consider that and then consider the following bit from Barclays who most assuredly wrote this prior to Trump’s Sunday morning tweets:
Trade protectionism will remain in the spotlight. The US Trade Representative has until Friday to publish the list of Chinese products subject to tariffs, bringing headline risk back as markets start to assess the effects of the imposed tariffs and China’s likely response. As such, global risk sentiment might remain fragile this week.
In the Americas, despite recent optimism, NAFTA negotiations are far from conclusion and the last round, tentatively scheduled to start in the second week of April, will gather attention as parties decide how to move forward as the Mexican election looms.
If those fires had in any way died down over the past several days, Trump’s Sunday NAFTA balderdash just doused them with gasoline.
Just to be clear, this was already set to be a pivotal week to the extent we’ll get something of a clean read on how market participants are thinking about the recent tech turmoil (from Facebook and Twitter to Tesla to Amazon) and also because Friday will bring March payrolls thus “confirming” or “denying” (scare quotes are there for a reason) February’s “Goldilocks” jobs report.
With all of that in mind, consider the following additional color from Barclays (and this is from their FX team, hence the currency focus):
The growth outlook remains broadly supportive. We expect strong and broad-based growth to continue globally (a little above 4% through 2019), with a limited impact on inflationary pressures, allowing for a very gradual normalization of monetary policy in core economies. Sentiment remains positive and at high levels, despite the modest declines seen in manufacturing the last couple of months. This week, PMI data across the globe (China, US, UK, Canada, LatAm) should reinforce the positive, although slightly moderating, confidence in the global economy. In addition, the US employment report is likely to show continued strong job creation with limited wage pressures (non-farm payrolls 200k), while the effects of the late-cycle US fiscal stimulus are likely to start to be felt in the coming months. However, bears are coming after Goldilocks. Trade protectionism, US economic policy uncertainty, concerns about higher cross-market volatility and risk premia in core rates markets call for a more tactical approach to risk assets. Other than for the JPY, these risks do not alter our FX forecasts significantly, but do alter our perceptions of risk and reward across markets.
Thus it’s possible – but of course not likely because as we’re fond of reminding you, the worst case scenario is almost never the most likely scenario – that heightened trade tensions with China, renewed NAFTA worries, and tech jitters could collide with a jobs report that misses on the headline print but beats on AHE.