And the Fed Chair Goes to….

Who will Trump give the rose (ahem) Chair Position to, and who will he say “Your Fired” to?

Investors have a busy week ahead as Trump is supposed to announce his pick for the next Fed chair, the latest Fed statement, and another busy earnings week. On the economic front, we have Manufacturing PMI, the Unemployment Rate, Non-Farm Payrolls and Average Hourly Earnings.

 

Head of the Fed: And the rose goes to… President Trump is likely to announce the new Federal Reserve chair before he leaves for China later this week. Sources are saying that the 2 finalists for the most powerful person on Earth are Fed Governor Jerome Powell and Stanford University Economist John Taylor, meaning Fed Chair Janet Yellen and the rest of the candidates are out of the running. PredictIt.com continues to have Jerome Powell as the odds on favorite. We will continue to see movements in the markets along with the US Dollar as the Fed Chair decision comes nearer. However, anything can happen.

Federal Reserve: So in the same week of a potential new Fed chair, we have the Fed scheduled to release a statement on Wednesday (11/1). This is one of the smaller meetings with no updated projections and no press conference after. The markets are factoring this meeting as being a nothing burger for rates. However, we may get a clue as to if the Fed started to unwind their balance sheet. If the unwinding started and is larger than anticipated, we may see the US Dollar shoot up, along with oil and Treasury Yields. Bank stocks will also be happy as banks continue to pocket the extra interest rate instead of paying depositors so you will continue to get .00001% on your savings. 

Earnings: Earnings are roughly halfway through and we have another 135 S&P 500 companies scheduled to report this week. Traders will continue to see individual stocks have huge price swings if a company’s earnings outpaces or fall short of what the street expected. According to Thomson Reuters I/B/E/S, we have now seen 55% of S&P 500 companies report 3rd quarter earnings so far. Of them, 67% reported revenue above expectations while 74% have reported earnings above expectations. This week has some heavy hitters including Apple and Facebook.

Non-Farm Payrolls & Unemployment Rate: Non-Farm Payrolls, the Unemployment Rate and Average Hourly Earnings for October are scheduled to be released this Friday (11/3). Should the figure show that the economy created more jobs than expected, or if average hourly earnings jumped higher, we will likely see the markets go higher, the US Dollar go higher and oil go lower. Should these numbers disappoint, the markets will likely go lower along with the US Dollar. Like in previous months, the Unemployment Rate may drop but average hourly earnings will continue to stagnate as additional part time workers at Amazon will only be paid minimum wage until a robot can do it for cheaper. As we learned last week, Amazon hired 160K people in the 3Q. So roughly half the jobs created in the US in the 3Q were by Amazon?

Bank of Japan: On Tuesday (10/31), the Bank of Japan will release a policy statement followed by a press conference. This will be the first statement since current Prime Minister Shinzo Abe won the latest election. With the election, Bank of Japan Governor Haruhiko Kuroda will likely be in charge of monetary policy for another 5 years after his current term is up next year. With him at the helm, investors do not expect a policy shift or for the Bank of Japan to announce any type of dial back of its huge stimulus program (Yay free money) any time soon.  

Another Super Thursday for Bank of England: The Bank of England is scheduled on Thursday (11/2) to publish its policy decision, Inflation Report, Official votes and new forecasts or as they call it, Super Thursday (cause their Super, thanks for asking). The Bank of England Governor will also give us his latest outlook as to how the negotiations are going with Brexit. Comments around the negotiations could potentially strengthen or weaken the British Sterling.

Catalonia: The latest out of Spain has the Catalan Parliament voting for independence to form the Catalan Republic, an independent and sovereign country. We don’t know the full extent of what the Spanish Government reaction will be at this time, but there are fears it will involve a police state similar to what Francisco Franco implemented in his reign. So far they have implemented Article 155 and the Spanish Prime Minister has fired the Catalan President, Police Chief and entire Catalan government (sounds very Democratic to me). Spanish bonds will likely spike higher on the news as the Euro will dip with European banks and markets to likely go lower as the crisis continues. Also, will history repeat itself? The last time the Catalan Republic was declared back in 1934, there was a state of war for 10 hours, resulting in 46 dead in Barcelona.

All Saints Day & Culture Day: On Wednesday (11/1) in certain European countries such as France and Italy, banks will be closed for All Saints Day. Since it’s in the middle of the week, markets will likely not see outsized moves the day before or after the holiday in their respective countries, and the rest of Europe. Also this week, Japanese banks are closed for Culture Day on Thursday (11/2).

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. 

Trump!... I was WAY off!

 

Investors will continue to digest the results of the Presidential election and how a Trump Presidency may affect policy and the markets. On the economic calendar, we have a busy week with Retail Sales, PPI, CPI, Building Permits and Philly Fed. At the bottom is a breakdown of winners and losers so far from a Trump win in the election. 

A Crash and Then a Record: In the early morning hours of last Tuesday night, futures were down 5% as it looked like Trump was about to win the election. This was similar to the reaction seen after the unexpected Brexit vote. And similar to Brexit, the markets recovered. The only difference was this time the markets had recovered in a few hours, instead of a few days. The result of looking at his potential policies had the markets racing higher setting new all-time highs for the Dow. Investors will look to see if this bullish activity continues, or if we see a pull back and some profit taking. The broader markets finished last week up nearly 4% (Dow up over 5%), with the Russell 2000 up over 10%.

Bond Market Sell Off: Last week witnessed the largest bond market sell off in recent history. 10 year Treasuries sold off sending the yield above 2% for the first time since January. 30-year Treasury bonds hit 2.92%. With a Trump Presidency seeing inflation increase, investors will see if the selloff continues and yields rise even further steepening the curve. If these yields are to hold, expect mortgage refinancing to plummet on the higher rates. 

Super Mario Speaking: On Monday (11/14) ECB President Mario Draghi is expected to speak. Investors will be listening to Draghi’s first reaction to the US Presidential election. Traders will listen for hints as to any changes to the ECB’s bond buying program. This could include lengthening of the current QE program which would weaken the Euro. Draghi is also expected to speak on Friday at the Euro Finance Week.

CPI: On Thursday (11/17), CPI is released. Should CPI come in stronger than expected, it would signal that the consumer will be able to absorb an interest rate hike before year end. Since this reading is from data before the election which saw bonds selloff on the chance of seeing higher inflation from a Trump stimulus program, a strong reading would likely guarantee an interest rate increase in December.

FOMC Members Speak:  2 FOMC members (James Bullard and Esther George) are scheduled to speak this week. The 2 members will likely comment on how a Trump Presidency may affect the economy. Even with the election, the FOMC continues to say there will be 1 rate hike this year, we will wait to see if they follow through with the potential raise. 

China: Last week, the Chinese Yuan had its steepest weekly decline since January as the US Dollar strengthened in reaction to the election. Investors will monitor the Yuan to see if continues to fall. Trump rhetoric this week on his potential policies from his administration could also adversely affect the Yuan. Up this week, the Chinese economy is scheduled to release data on Industrial Production and Retail Sales. Weak readings from either data could send the Yuan lower.

Trump: As the market went away from fundamentals last week and trading on pure emotion in a lot of cases, investors will look to see if volumes come down and if the market retreats from the all-time highs we had last week. Here’s a breakdown of certain winners and losers of a Trump Presidency:

The Winners

Banks: Shares have shot up at banks on both sides of the Atlantic as Trump will likely repeal Dodd Frank. (Prop traders will have jobs again)

Construction: Trump plans on boosting US infrastructure to help stimulate the economy. Demand for metals for building materials including building a potential wall along the Mexican border has construction companies and metal prices shooting up. Copper is currently up approx. 10%.

Oil Refiners: Trump may ease the requirements on the Renewable Fuel Standard which will lower refiners costs. Refiners have shot up.

Russian Economy: Improved ties with Russia would help the Russian market and the Russian Ruble is up on Trump’s election. 

The Losers

Mexico: The Mexican Peso is now at an all-time low on fears that Trump’s Presidency will have negative effects on the country. (That Trump Trade must be paying dividends now)

Government Bonds: We have seen US Treasuries sell off on the prospect of inflation increasing with potential pro-growth policies.

Renewables: Trump is likely to reverse green energy policies Obama had in place. Renewables have been hit hard on the outcome.

Healthcare Companies: With Trump planning on repealing Obamacare in his first 100 days, healthcare companies will take a dive as less people may potentially sign up for healthcare.