Twirling, Twirling, Twirling Towards Freedom

How many of you think Trump’s inauguration speech will consist of “Upward, not Forward, and always Twirling, Twirling, Twirling Towards Freedom.”

Kudos to you (and Kang) if you get the reference.

 

Investors have a busy week ahead with an ECB Press Conference, a string of earnings and the inauguration of the next US President. On the economic calendar, we have CPI, Building Permits and Philly Fed Manufacturing.

US Dollar Pull Back: In the previous week, we witnessed the US Dollar pull back after hitting a 14-year high. We have also seen Treasury yields push lower. The push back on the Dollar is likely a result of Fed members saying faster tightening may not happen. In reaction, we have seen some markets pull back. Investors will look to see if the US Dollar pulls back even more, pushing Treasury yields lower. Additionally, with a potential pull back possibly looming, look for gold to go higher as we saw it above $1200 last week.

Super Mario Speaks: On Thursday (1/19), ECB President Mario Draghi will announce the latest interest rate decision. At this juncture, investors are not expecting any changes to rates. However, investors will be listening to potential changes to the types of bonds that may be purchased or the amounts. Any hawkish comments would send the Euro higher amongst most currencies and send stocks lower.     

FTSE 100: On Monday (1/16), the FTSE 100 ended its streak of being up 14 trading sessions in a row. It is also up approx. 15% since the Brexit vote. However, much of that gain is due to the pound collapsing. In the meantime, investors will be listening to a speech by Prime Minster Theresa May, scheduled for Tuesday (1/17), to see if this upward trajectory in the FTSE continues. So much for Brexit being the end of the world for Briton.

Earnings: Earnings season picks up with 34 S&P 500 companies expected to report Q4 earnings this week. Traders can see individual stocks have huge price swings if a company’s earnings outpace or fall short of what the street expected. According to Thomson Reuters I/B/E/S, of the 29 S&P 500 companies that have so far reported, 34% reported revenue above expectations while 72% have reported earnings above expectations. 34% is very low as a typical quarter sees 59% of companies beat on revenue. This may just be an anomaly with a small pool so far reporting (less than 7%).

FOMC Members Speak: Three Fed members (William Dudley, Neel Kashkari and Patrick Harker) and Fed Chair (Janet Yellen) are scheduled to speak this week. The Fed Chair will be blessing us with 2 speeches this week at various events. Even though the Fed is taking a wait and see approach as to potential fiscal policy under Trump, investors will have multiple occasions this week to hear hints as to the potential timing on interest rate hikes and the steepening of the yield curve. With the Dollar pulling back in recent weeks, investors will be expecting dovish comments. Additionally, I still expect the Fed speakers to not actually say Trump by name, way too much to ask.

CPI: On Thursday (1/20), CPI is released. Should CPI come in stronger than expected, it would signal that the consumer will be able to absorb last month’s interest rate.

Inauguration Day: Protests are planned around the country for Inauguration Day on Friday (1/20). Even though the protests will most likely be peaceful, should the rallies get out of hand, we could see the markets being affected negatively. Investors will also be listening to the inauguration speech for any policy hints for the next administration.  

Trump Tweets: The president elect wasn’t short of tweets last week and he moved the pharmaceutical industry in a press conference after saying pharma companies ‘are getting away with murder’. Investors will continue to watch Donald Trump’s twitter page as his tweets continue to impact individual stocks or FX. Analysts believe his tweets will likely help determine policy for his administration. However, we still do not know if this will continue once he gets sworn in as President this Friday (1/20).

Dow 20K or US Debt Hitting $20 trillion: We still have not hit either milestone but we could hit both sometime this week. Since the Dow hit 19,900 back on December 13th, it has struggled to punch through 20K. Investors will watch to see if 20K continues to act as a major resistance level.