US: Glass half-full so far on Trumpnomics, but risks are lurking - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, suggests that the market views Trumpnomics as a glass half full at the moment as the rise in global yields and surge in USD has not spilled over to weaker equities. 

Key Quotes

“The US stock market has moved to new highs in a broad-based rally notwithstanding potential headwinds from a strong USD and risks to trading relations and immigrant labor that may arise as Trump fills key roles in his administration with hardline loyalists.  Other major equity markets and global commodity prices are also strong.  The USD has started the week retracing some of its rapid gains over the last two weeks since the USA election.”

“Commodity and EM currencies have taken heart from strong asset markets, EUR has firmed on some better news on German and French politics.  The GBP rose solidly reaffirming a rising trend since the USA election as PM May shows deft management of Brexit expectations and excessive pessimism in Q3 is unwound.  The JPY has been one of the more consistently weaker currencies since the USA election as sentiment and positioning have swung more abruptly from bullish JPY to bearish.  However, news of an earthquake in Japan has boosted the JPY.”

“We see potential risks to the sanguine view for global markets.  The Italian referendum threatens confidence in Europe, higher US yields, and higher inflation expectations may spill over to weaker equity markets. Fears over protectionist US policies may also undermine US and global investor confidence.  The broader trend remains in favour of the USD, but we see the market getting ahead of itself on equities and this may threaten EM and commodity currencies, while bringing support back for JPY, at least for a time, as investors consider the threat from higher inflation expectations on asset prices.”