Almost smoothly

Donald Trump’s inauguration went almost smoothly. The US markets were closed, the Chinese stocks were in a better mood on a ‘good’ phone call between Trump and Xi, and the European equity markets opened higher on Monday stagnated with hesitation but sentiment got better toward the end of the session.

Surprise, Trump didn’t throw a punch to China in the first few minutes of his presidency and the WSJ reported that he would study the trade policies and the relationships with China, Canada and Mexico instead. The latter gave hope that Trump’s trade policies wouldn’t be as aggressive as he promised. As a reaction, the US and European futures rose and the US dollar fell significantly. The EUR/USD, for example, rallied to 1.0434 after opening the week near 1.0285, while Cable rose from below 1.22 to 1.2344. Even the Canadian dollar and the Mexican peso gained more than 1% against the greenback. And the gap between the gold and copper prices between New York and London tumbled on softened tariff threats.

But wait... the dollar jumped again, erasing losses versus most major currencies as Donald Trump later said that Canada and Mexico could be subject to 25% tariffs from February 1st. Any remarks could hit China anytime, as well. So yes, the US futures are slightly positive this morning but the European futures are in the red. The dollar is higher and the CSI 300 has given back the early-session gains.

Welcome to Trump 2.0 during which investors will be served a good dose of adrenaline, volatility and unpredictability. And, before I forget, the Trump coin tanked 20% after Melania launched her own coin... I don’t know what to say about that.

Back to reality

Ok... so this morning, we are back to the inflation worries on tariff threats that pushes the US dollar higher against many majors. The EURUSD is back below the 1.04 level. Technically, yesterday’s rally didn’t damage any medium-term levels, the rally remained short of the 50-DMA and the minor 23.6% Fibonacci retracement on September to now selloff – a big part of which was explained by the potential negative impact that Trump’s tariff policies would have on the European economies. So, we remain in that narrative. The outlook remains comfortably negative for the euro, the tops look like good selling opportunities due to hawkish risks regarding the Federal Reserve (Fed) – that is expected to face higher inflation, versus dovish risks facing the European Central Bank (ECB) - on potential negative impact of Trump policies on European economic tissue under the condition of inflation being under control. Yesterday’s German PPI figure came in negative on a monthly basis and gave support to the ECB doves.

Across the Channel, yesterday’s rebound in sterling versus the dollar didn’t threaten any important levels either, and sterling remains under the pressure of discomfort regarding how the British government will deliver the promised growth when finances are so tight. In Japan, the USDJPY tests the 50-DMA to the downside. Here, the hawkish Bank of Japan (BoJ) bets regarding a highly possible rate hike this Friday keeps the yen bulls in charge of the market and that gives the yen room to extend gains. Elsewhere, the AUDUSD – which also jumped more than 1% on hope that tariffs wouldn’t be *that* aggressive - is under pressure this morning, while the USDCHF sees support near the 90 cents mark.

What’s next? No one knows, but the positive pressure on the dollar against most majors – except the yen – should continue on the back of fears that Trump tariffs would boost inflation in the US and keep the Fed hawks close to the market. On the first day of Trump presidency, the Fed funds futures are pricing a possible 25bp rate cut from the Fed in May meeting – but the probabilities are close to a coin flip; everything is subject to change – and sometimes rapid changes.

In energy, Trump unsurprisingly wants to scrap climate, DEI policies and declare an energy emergency to – obviously – support fossil fuels, increase domestic production and replenish the strategic petroleum reserves. Increasing domestic production would soften the price of crude, but replenishing the SPR would pump oil out of the market and push its price higher. In the short-run, the impact from replenishing the strategic reserves could outweigh (because doing that would withdraw oil from market quickly), while increasing production takes time. But because Trump wants energy to be cheap, he would be advised to act slowly – which could have a limited impact on oil prices. In all cases, the energy companies will likely be well supported by Trump policies – and we could see further gains in the sector on the rollback of climate-focused policies at the expense of clean energy and climate friendly sectors. Voila.

Netflix time

Netflix is due to announce its Q4 results today after the bell. The company is expected to almost double its earnings per share compared to the same time last year, and post an almost 15% growth in revenues. A strong report could send the stock price to above $900 again and bring the $1000 mark back in the scope, while a disappointment could trigger a deeper downside correction in the stock price, with next important support seen at $795 per share – the 100-DMA and $756 per share, the minor 23.6% Fibonacci retracement on 2022 to today rally. In all cases, Netflix remains an investors’ darling: 21 analysts out of 30 have a buy rating on tipranks, 7 thinks holding the stock is just fine, only 2 issued sell recommendation over the past three months.

Before we go

The European ZEW sentiment index and Canadian CPI are on today’s economic calendar. But we can no longer look at the economic calendar, scheduled events and meetings and predict that the market moves will be mostly driven by those. A comment from Trump could land at anytime and change the whole picture. Again, welcome to Trump Act 2.