Surprises can come from Trump's Friday meeting with UK PM May

Outlook:

This week we get some inter esting data, including Dec existing and new home sales, the Nov house price index, durables, and the Q4 "advance" GDP on Friday. The Atlanta Fed has 2.8% as of the latest reading.

The biggie is the trade deficit on Thursday. We already know Trump intends to re-negotiate NAFTA and back out of TPP, but a surprise can come from the Thursday data and the Friday meeting with UK PM May. Trump intends to be disrupter-in-chief and Friday offers the perfect opportunity to disrupt. This is probably very good news for May and for sterling.

We are all going to have to go back to Econ 101 to get a handle on Trump's trade talk, which is riddled with misunderstandings and outright lies. But here goes: according to the World Bank, the US leads the world in the biggest dollar amount in trade, but trade is only 21.1% of GDP (2015 data). Of that, exports are only about 8.4% of total American economic output. In contrast, trade accounts for 38% of UK GDP and a whopping 70.7% of German GDP. Logically, the party that should be in Washington on Friday with hat in hand is Merkel.

And what does the US export? As we recall writing almost 20 years ago, the US competitive advantage lies in agriculture but agricultural exports have been falling for the last few years and ag imports rising from Canada, Mexico and the EU. Spend a few minutes at https://www.ers.usda.gov/data-products/agand- food-statistics-charting-the-essentials/agricultural-trade/--it will blow your mind. What Trump should be emphasizing is ag exports, not competing with higher-quality German machinery, even if that is the US top export.

Besides, the manufacturing sector now makes up less than 12% of US GDP. See chart from Fred cour-tesy of the Daily Shot. In other words, Trump is likely to botch trade talks because he promised factory jobs, not farm jobs. Besides, agriculture is totally messed up in the US because of subsidies and other interferences. Think sugar.

Still, those who like the idea of Trump shaking things up are going to get their wish. We already have talk of new capital investment and just wait until Trump starts talking about corporate tax reform. Equities will recover nicely whatever earnings season may bring, on the hope of the Trump corporate tax cut.

But if Trump wants to promote trade, with the UK or anyone else, surely he is going to repeat that the dollar is (temporarily) too strong?

This is just one of many reasons why risk appetite is having a nervous breakdown. If we want to assess risk appetite, let's look at gold. The 3-month chart here is from MarketWatch (Feb futures). Gold has been rising for four weeks and is at the highest since late November.

Bloomberg reports "Gold held near a two-month high as investor nervousness following Donald Trump's inauguration weakened the dollar and spurred demand for a haven. Bullion was little changed in London after earlier reaching the highest since Nov. 22, and has advanced in all but two trading ses-sions so far this year." Gold ETF's are becoming popular again.

We can't expect a distraction from Trump from the real authorities, the central banks. Ahead of the Fed's policy meeting that starts Jan 31, Feds customarily keep their mouths shut. The BoE and ECB chiefs have scheduled speeches but nobody expects anything much from them.

At a guess, the dollar will continue to slump until we get a shiny new sound bite that turns the tide. And we do expect the shiny new sound bite. It's what Trump excels at. Besides, the gloom projected in the inauguration speech is not entirely credible and the fluttering Trump gadfly will quickly move on to something "great." Markets will follow.

Politics: Trump started his presidency by signing an order freezing some Obamacare regs, among other things, and scaring the pants off world leaders with assertions of "America first."

Trump seems not to know the history of the phrase (isolationism, Lindburgh) and wants to re-define it to mean he will stop other countries from freeloading off the US. Belgian PM Verhofstadt wrote "Hostile inau-guration speech. We can't sit around & hope for US support & cooperation. Europe must take its desti-ny & security in its own hands." Well, one guy got the message Trump intended to send. Trump enters office with an average 52% disapproval rating, according to five polls. These are the same polls that underestimated Trump's win. Nate Silver at 538.com delivers a statistical analysis on how the pre-election polls got it so wrong and those problems may be at work here, too. But in the end, "Trump would still be unusually unpopular for a president-elect."

And the libs are still spouting sour grapes. A NYT editorial complains that the Trump team is not deliv-ering on VP Pence's promise to be ready on Day 1. "Given that President Trump thinks, as he said in his inaugural speech, that the country is in desperate straits, it's peculiar that he didn't assemble a crack team in record time. Instead, he assumed office on Friday with the most incomplete team in recent his-tory. Since then he's seemed to focus more on his inaugural crowd size than on the immense job at hand.... So much for the old canard about a businessman knowing how to run government more effi-ciently than people with, you know, experience in government. Clearly, Mr. Trump could have spent more time on the transition and less on Twitter."

Trump is offensive to the security services and the press. At the CIA, in front of the wall of the fallen, Trump chose to lie about how many people attended his inauguration—the "most ever." Aerial photo-graphs tell a different story. And the Women's March on Saturday seems to have been bigger than the inauguration audience. The NYT report "The women's march in Washington was roughly three times the size of the audience at President Trump's inauguration, crowd counting experts said Saturday. Mar-cel Altenburg and Keith Still, crowd scientists at Manchester Metropolitan University in Britain, ana-lyzed photographs and video taken of the National Mall and vicinity and estimated that there were about 160,000 people in those areas in the hour leading up to Mr. Trump's speech Friday. They esti-mated that at least 470,000 people were at the women's march in Washington in the areas on and near the mall at about 2 p.m. Saturday."

This passes the "So What?" test? The guy is the president. He pays attention to popularity metrics and quickly changed his tune from dissing the protesters to being impressed by their numbers. Now if he would just stop lying.

And everyone is noticing we elected a billionaire who is surrounding himself with other billionaires to fix the system that made them billionaires. Where does that come on the probability scale? Trump is a jackass. He sent out three tweets before 1 pm, having been sworn in at noon. But we have had other jackasses in the White House. Think of Lyndon Johnson, holding meetings while on the toilet. But from Johnson we got the Civil Rights Act. As for governing style, the libs complain the Trump inaugu-ration speech was just another campaign speech, not a promise to unify and serve all. But Lincoln was hardly a consensus-builder, either.

What to worry about: off on the horizon is a horrible potential conflict between proposed Secy of State Tillerson and China. Tillerson, as ExxonMobil CEO, has been working with Viet Nam on a natural gas project named Blue Whale located in the water considered Viet Nam's (by the UN Convention on the Law of the Sea). But China claims all of the South China Sea, despite losing its case last year. The out-going Secy of State Kerry was appeasing to the Chinese. Tillerson is not a wuss.