Could Donald Trump trigger a fresh rally?

Asia handed over a mildly positive market. The FTSE opened flat. Whilst no particular sector stepped forward, Sainsbury’s rallied 4.40% at the open on the back of solid Christmas sales. Tesco shares are up by 0.49% on rising expectations for a positive surprise when the company releases sales figures tomorrow.

UK’s mining stocks (-0.68%) failed to follow up on the overnight miners’ rally. Combined with weakness in the energy sector (-0.32%), the nine consecutive sessions record rise in the FTSE 100 stocks may have come to an end. The cheaper pound is unsuccessful to attract more investors, hinting at a possible consolidation in London throughout the day.

Looking at the pound, the markets are pricing in a relatively hard Brexit, an exit strategy that would likely include the UK divorce itself from the single market. This scenario could potentially erase some of the optimism in the UK companies operating across the Channel.

Cable extended losses to 1.2154. Rising selling pressures suggest a further slide to the mid-term support of 1.2080, before the 1.2000 mark. The euro-pound bounced lower from 0.8763. Buyers are touted around the 100-day moving average, 0.8657. The UK’s manufacturing and industrial production data is due today and analysts expect a positive turnaround following the unexpected contraction in October. Soft data could further weigh on the pound, while a solid read is unlikely to trigger a sustainable recovery in the GBP-complex.

Bank of England (BoE) Governor Mark Carney will face the Parliament’s Treasury Select Committee today for a review on the effectiveness of the monetary policy adopted since the UK’s decision to leave the EU.

Donald Trump at the spotlight

The US dollar appreciated against the majority of its G10 counterparts. President-elect Donald Trump will deliver his first press conference today. Expectations are high regarding Trump’s energy boost plans. The key talking points will likely include Trump’s plans to boost US economic activity, fiscal plans, key appointments as well as the shenanigans regarding his relationship with Russia.

Any stress or disappointment could cause a further pullback in the US dollar and the sovereign yield curve. The US equity futures traded flat in Asia. The scepticism kept the Dow Jones futures capped at $19809, the S&P500 futures traded at $2260/2264.

If however Donald Trump meets expectations with a solid tax reform and expansive government spending plans, we could expect another wave of enthusiasm in the US stock markets. The Dow Jones could resume its ascent towards the 20K level, while the S&P500 stocks could take another step up.

An expansive fiscal outlook would inevitably involve a hawkish shift from the Federal Reserve (Fed), in order to avoid an undesired overheating in the US economy, especially for inflation. Hence, the US dollar and the US yields would further rise on the back of a renewed Trump effect. The market currently prices in three Fed interest rate hikes in 2017.

The lira is racing to the bottom

The USDTRY hit 3.8951, while the EURTRY traded at 4.1108.

The attention shifts to the Turkish monetary policy makers. The Central Bank of Turkey is suffering from a massive loss of credibility. Turkey faces a dangerous threat to its parliamentary regime. Political pressures and social unrest are on the menu. We stay clear from lira and lira denominated assets.