Trump Adds to Market Anxiety

Daily Analysis - 12/01/2017

Dollar Falls While Risk Aversion Assets Gain

Trump’s first press conference of 2017 as President-elect has left more questions than answers after his comments failed to reveal his positions on policy. Although he covered some questions relating to conflicts of interest, his failure to address trade, stimulus, or tax reform sent traders running for cover in haven assets.

Trump Speech Leaves Out Policy Details

In the aftermath of a much anticipated speech, US President-elect Donald Trump refrained from outlining many policy points during his press conference, disappointing markets hoping for more certainty regarding the outlook. Despite expectations that he would cover items such as fiscal stimulus and tax reform, these issues went untouched during his comments, with the main focus centered on his solution to handle potential conflicts of interest with his existing business holdings.

Keeping to his traditional strategy over the last few months, he was very vague on details, instead preferring to keep policy plans under wraps until after the inauguration which is scheduled for January 20^th. In reaction to the looming ambiguity surrounding policy, the US dollar continued to give back ground on Wednesday, pushing gold prices back above $1200 per troy ounce to the highest point since November.

US Crude Production Soars

In another surprising development for the US energy sector, the resurgence in production continued to accelerate last week as evidenced by the latest data delivered by the Department of Energy on Wednesday. According to the Energy Information Administration, crude oil output reached 8.946 million barrels per day last week, marking the fastest pace of increase in 20-months as production returns to the highest point since 2015.

This adds to a growing body of evidence that shows American tight-oil producers restarting formerly shuttered projects as prices rise. Aside from production, the data showed a surprisingly large stockpile build for both unrefined crude oil, gasoline, and distillates. Crude inventories rose by 4.097 million barrels while gasoline stocks increased 5.023 million barrels and distillates surged by 8.356 million. While crude oil initially fell on the report, it subsequently rose $2.00 per barrel before pulling back modestly in early Thursday trade.

Peso Plunges to New Record

With Trump’s speech spurring another selloff in the Mexican currency, the Peso remains under serious pressure this week despite multiple moves by the Central Bank to prop up the currency. On the whole, the Central Bank has spent approximately $4 billion in an effort to go ahead and reverse the ongoing Peso slide with little to no impact.

There is significant fear amongst Mexican economic circles that the tremendous gains in economic activity over the past two decades are about to be reversed, especially if Trump remains serious about renegotiating NAFTA. Besides the Peso, fundamentals are also under increasing pressure with industrial production flat-lining at 0.00% month over month while annualized growth printed at a modest 0.30% for the 12-months through the end of November. Since topping 22.0000, USDMXN has pulled back modestly to just above 21.3000.

French Inflation Prints at Highest Point Since 2014

In a sign of gradual improvements in French economic fundamentals, the latest data released by INSEE showed that inflation was confirmed at 0.60% during the month of December, marking the highest point in the figure since May of 2014. While manufacturing products and medical products fell during the annualized period measures, gains in food prices and energy costs helped buoy the results. Fresh food costs rose by 5.60%, exceeded by the 7.50% rise in prices for petroleum products over the course of 2016.

Nevertheless, concerns remain abundant about high unemployment which climbed back above 10.00% during the three months ended in September alongside tepid economic activity for the period which saw GDP at a modest 0.20%. After a tremendous rally over the last few months, the French CAC 40 is back on the retreat, erasing early gains for 2017.