The Trump and coin

After a few weeks of hesitation around the beginning of the new year, the equity bulls finally returned to the market last week on the back of a set of slower-than-expected inflation figures from both the US and the UK, and a set of stronger-than-expected US big bank results. The global bond yields retreated in the developed world from a peak reached earlier last week and let the equities take a breather. The US equity indices posted their best weekly performance since the US post-election rally of last year, and the non-tech sectors performed better than their tech peers. Both Nasdaq and the S&P500 closed the week above the downtrending channel top building since mid-December, while the Dow Jones recovered half of losses that it had accumulated after hitting a record high back in December 5th and outperformed its US peers. The more cyclical Stoxx 600 stocks gained around 2.40% – a bit less than their US peers, while the FTSE 100 rallied more than 3% to an ATH level.

In the FX, the US Dollar retreated on the back of soft CPI and softening Federal Reserve (Fed) expectations, leading to a slow down of the selloff in the EURUSD and Cable. The euro is trying to hang on to the 1.03 level this morning, while Cable is drilling past the 1.22 at the time of writing. The USDJPY, on the other hand, starts the week in favour of the Japanese yen as the Bank of Japan (BoJ) is expected to announce a rate hike this Friday – with hope that their action won’t send a shockwave across the global financial markets as it had been the case in summer 2023, and on hope that Trump’s policies won’t have a dramatic impact on the Japanese fundamentals.

The Trump and coin

Today, Donald Trump will be sworn in and officially move into the White House. A good part of Trump trade has already happened – the small and mid-caps rallied, energy and financials outperformed and cryptocurrencies touched the sky. Therefore, the first week under Trump may not bring a lot of surprises... (but it may as well!) The WSJ writes that Donald Trump has already prepared 100 – yes 100 – executive orders to take swift action after today’s inauguration, including an order to make crypto a policy priority and giving insiders of the crypto market a good voice within his administration.

Trump launched a cryptocurrency of his own on the Solana blockchain and the coin gained up to 600% in three days reaching a $15bn capitalization before easing – a little bit – also sending Solana to  a fresh record high.

But beyond that optimism, Trump policies are expected to be a double-edged sword. His pro-growth policies and deregulation are expected to benefit to the US economy but his tariff policies will certainly lead inflation higher and soften the Fed doves’ hands for easing policy. In addition, exploding debt levels will likely further push the borrowing costs higher.

Optimism in Asia

The week kicks off on a positive note in Asia. Tiktok is back and running in the US after a short blackout during the weekend. Donald Trump wants to extend the deadline for the company to find US partners to continue running the popular social media platform in the US. And Trump optimism goes beyond that. He and Xi Jinping held ‘a very good’ phone call to ‘make the world more peaceful and safe’. The Chinese CSI 300 is up this Monday although the People’s Bank of China (PBoC) kept its lending rates unchanged for the third straight month to contain the downside pressure on the yuan, the 10-year yield is trying to push higher...

Earnings

This week, big names including Netflix, P&G and American Express will go to the earnings confessional. The S&P500 companies are expected to print an almost 12% earnings growth in Q4. Pulling the Magnificent 7 out of the equation, the S&P500’s earnings growth is expected to be around 4%. Strong earnings and prospects of further rate cuts – though slower – could give support to equity valuations.

Oil rally slows near $80pb

Crude oil’s 20% rally since December 10th sees strong resistance above the $80pb level and the six-week ceasefire deal in Gaza helps easing the price of a barrel this Monday. But geopolitical risks prevail with Trump aiming to go after Russian oil giants, Iran and Venezuela. The IEA not expects a lower output surplus this year and the latter should give support to oil prices. Minor support is seen near the $77.30pb level – the minor 23.6% Fibonacci retracement on the latest rebound, and the major support stands near the $75.30/40pb region that shelters the major 38.2% retracement and the 200-DMA.