America first, markets second

European stocks dropped whilst Wall Street opened lower on the first full working day with Donald Trump as US President. Attempts to break out into new highs for the year have been temporarily shelved after Donald Trump opted for a protectionist, anti-establishment inauguration address. The tone at the inauguration was very different to the acceptance speech that preceded the latest rally in equities and the US dollar.

Perhaps the market was a little overdone to the upside anyway, but it isn’t hard to imagine a more positive reaction should the speech have been more conciliatory. Still, there is no clear sense of capitulation in markets yet. Investors are still willing to give Donald Trump the benefit of the doubt.

A little protectionism can be tolerated if it comes with lower taxes and lighter-touch regulation. In a series of statements on Monday, Trump generated mixed feelings about the direction of future policy. The new US President said he believes he can “cut regulations by 75%”, “cut taxes massively” for the middle class while imposing a “very major border tax”.

Mining companies strike gold

Stocks in the UK tumbled as the British pound struck a one-month high in the lead-up to the Supreme Court decision on triggering Article 50. Losses on the FTSE 100 were led by a drop in banking stocks as well as Paddy Power Betfair while miners and homebuilders were amongst the best performers.

A rise in the price of copper and a drop in the US dollar were supportive of mining company shares. Copper prices could be set to move significantly higher if supply is curtailed by a likely strike at a mine in Chile this week. Donald Trump’s “America first” inauguration speech has made the “dollar last” in FX markets. A drop in yields since the inauguration and a survey showing a fourth quarter of falling optimism at British lenders saw bank stocks including RBS and HSBC underperform. 

OPEC vs non-OPEC

A Saudi attempt to assure oil markets that OPEC nations involved in supply cuts are showing “very good compliance” fell on deaf ears. At $55 per barrel, oil markets are already pricing in compliance from OPEC but the battle lines are being drawn by non-OPEC. It’s not just US shale but Big Oil that deserves consideration. On Monday BP announced the start of its “Thunder Horse” offshore rig, which is expected to produce 50,000 barrels per day, is 11 months ahead of schedule.