Risk Appetite & Inflation Expectations increase US Dollar – 18 Nov 2016

Risk Appetite & Inflation Expectations increase US Dollar – 18 Nov 2016


Today’s macroeconomic calendar is empty apart from central bank speeches which we do not believe it would give us something different from what already know.

Despite the weak US macroeconomic data dollar continues to rally strong. Expectations that Trump will boost inflation by increase public spending and by introduce a huge infrastructure spending program. Trump’s plans have accepted a lot of criticism, only his idea to slide tax can add $4.5 trillion into US debt during the next decade.

Markets largely anticipate a hike next month. Trading opportunities at the moment will occur if the unexpected occurs, which means that if FED for whatever reasons do not hike, this will be a huge catalyst for the next market movements.

Markets become over optimistic or over pessimistic very quickly, markets characterized by bipolar reactions which often does not make sense. Few hours before US election results markets were cheering as were sure that Clinton had already elected. Then we saw a huge sell off for few hours after the disappointment that Clinton had lost elections. Then the sharp selloff of the victory of the ‘dangerous man ‘(Trump) followed by a market euphoria that Trump as new president will finally boost inflation and economic recovery.

On one hand financial stocks have risen 11% since the election, as expectations for a hike next month increase every day. On the other real estate utilities and consumer staples sectors that are boosted by a low rates environment are losing strength. Wall Street and USD appreciation shows a unique and remarkable confidence towards Trump even before he enters the white house and that divulges a lot… It does not seem a clever idea to fight the current trend (bullish on USD & Equities, bearish on gold and treasuries) unless we have new macroeconomic data or other breaking news that can change the current trend.

Daily Key points:
• Fed Yellen says she sees no circumstances that would stop her from serving out her term as president of Fed
• Fed Yellen: an increase in short-term interest rates “could well become appropriate relatively soon,”
• US based stock funds attract $24 billion in week ended Wednesday, largest inflows in nearly 2 years
• Dollar climbs to fresh 14-year highs after Fed chair’s testimony
• Portuguese 10 year bond yields hit 10 month high
• US jobless claims at 43 year low
• Wolfang Schauble uses hard language against UK for Brexit vote
• Emerging market bond funds post record $ 6.6 Billion outflow since US election

Daily Economic calendar:
Country Event Importance Previous Expectations Follow Times
Europe ECB President Draghi Speaks High N/A N/A EUR 11:30
Europe German Buba President Weidmann Speaks Medium N/A N/A EUR 13:30
USA FOMC Member Bullard Speaks Medium N/A N/A All indices 11:30
USA FOMC Member Dudley Speaks Medium N/A N/A All indices 17:30
USA FOMC Member George Speaks Medium N/A N/A All indices 17:30
USA FOMC Member Powell Speaks Medium N/A N/A All indices 17:35

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