Trump Victory Spurs Risk On Approach

Weekly Report - 13/11/2016

Election Results Spark Risk Asset Rally as Haven Assets Face Reduced Appeal


With the votes tallied, Donald Trump’s triumph has astounded the political establishment and financial markets.  While the initial kneejerk reaction to the results were negative, risk assets quickly rebounded, closing the week higher as Trump’s ambitious tax and stimulus plans begin to take share amid speculation that higher interest rates are just around the corner.

Last Week

Election coverage and the resulting volatility dominated financial markets last week, sending risk assets higher while haven assets slumped.  The Dow Jones Industrial Average closed at a brand new record high in reaction to Trump’s proposed fiscal stimulus measures.  A combination of tax breaks and infrastructure spending saw renewed confidence in the US outlook.  Federal Funds futures, which track the probability of a Federal Reserve rate hike, have risen to 81.10% as of Friday trade for the December meeting.  In response, gold prices fell to the lowest level since May as the US dollar index, which tracks the US currency against a basket of major peers, rose to the highest level since January.  Aside from United States, China released its latest trade data which confirmed an enduring contraction in exports.  Even though both exports and imports are gradually recovering, both remain in negative territory.  In a positive sign, both consumer and producer price inflation is picking up.  Furthermore, the offshore Yuan trading at its lowest levels on record will help improve the figures down the road.  Finally, in a widely anticipated move, the Reserve Bank of New Zealand reduced interested rates to 1.75% in a bid to help move the need on inflation.


The Week Ahead

Data related to gross domestic product from major economies is in the pipeline with Japan and the Euro Area set to report on third quarter economic activity this week.  Japan kicks off with its third quarter figures, with expectations of 0.20% quarterly growth, matching the prior periods activity while the annualized pace of expansion is forecast to rise to 0.90% from 0.70% reported during the second quarter.  Should the Yen continue to give ground versus the dollar in the coming sessions, it could raise optimism about the outlook as corporations struggle with profitability.  The Euro Area is also set to report on growth, with expansion expected to stay stable at 0.30% quarterly and 1.60% annually.  Besides GDP results are inflation numbers from across the globe.  UK consumer price figures are due on Tuesday, with a continued upside acceleration anticipated in light of renewed downward pressure on the Pound.  While Euro Area monthly consumer price growth is expected to taper modestly to 0.30% from 0.40% prior, annualized headline CPI is projected to remain on hold at 0.50%.  Finally, to wrap up the week, the United States will report on inflation, with monthly core inflation forecast to rise to 0.20% while the annualized core figure holds steady at 2.20%


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