Markets to continue adjusting to Trump’s Triumph

Written by Hussein Sayed, Chief Market Strategist at FXTM

Undoubtedly, last week is one to remember for years to come, not only because of Trump’s surprising victory, but the market's reaction to the new president. Instead of equity markets plummeting and bonds surging due to a new chapter of political uncertainty, stocks rallied to new records and U.S. treasury bonds declined to levels last seen in January. Investors decided not to waste time and were very fast to adjust their portfolios based on Trump’s promises of fiscal spending, cutting taxes, trade relations, and fewer regulations.

Here’s a summary of last week’s markets biggest moves on Trump’s Triumph

• S&P 500 financial sector was up 11.33% to become the third best performing sector for the year, as steepening yield curves and anticipated regulatory relief made it investors best choice.
• Industrials and health care were the second and third best performing sectors gaining 7.95% and 5.82% respectively.
• Utilities “bond proxies” lost 4.08% as U.S. 10-year treasury surged from 1.83% to 2.11%.
• The dollar strengthened across the board, especially against emerging markets currencies which fell the most in 5 years. The Mexican Peso traded at new record low shedding 13.16% of its value since Wednesday.

Trump’s transition will remain a big factor influencing financial markets the weeks ahead especially as he starts revealing the names of people who will serve in his administration. We also have a busy economic calendar and speeches from top central bankers.

Investors are pricing in 81% chance for a rate hike in December, and Fed presidents who spoke after the election seems to be in line with the market expectations. Vice Chair, Stanley Fischer welcomed the prospect of expansionary fiscal policies and believes that the case for removing accommodation is quite strong. I think what’s more interesting than a Fed rate hike in December is to see whether the dots “which shows the interest rate projections of the 16 members of the Federal Open Market Committee” starts climbing after falling for several years. 

On Thursday, we will hear from Chair Janet Yellen who will testify to the Senate’s Joint Committee. She’s likely to keep December rate hike alive as Trump’s Christmas gift.

Cable traders will also be interested in what BoE’s Mark Carney has to deliver on Tuesday when he releases the latest inflation report, economic forecast and outlook policy. On the data front inflation, employment and retail sales are key figures to determine whether Sterling can continue moving higher.