Is the Trump rally over?

Financial Mirror (Cyprus) - - FRONT PAGE -

The fi­nan­cial mar­kets’ re­ac­tion to Don­ald Trump’s vic­tory seemed to be abat­ing early Tues­day with the dol­lar in­dex re­treat­ing for the first time in six days after ap­proach­ing its high­est lev­els in nearly 13 years. Global bonds’ sell-off also took a break after wip­ing out al­most $1.5 tril­lion from their value.

More in­ter­est­ingly, yields on Ja­pan’s 10year JGB’s rose above zero for the first time since Septem­ber 21 and if they set­tle above zero, it will be for the first time since Fe­bru­ary 23, leav­ing only the Swiss ri­val in neg­a­tive ter­ri­tory, sug­gest­ing that we’re ap­proach­ing an end to the neg­a­tive in­ter­est rate world.

Fixed in­come port­fo­lio man­agers are chal­lenged by Trump’s ex­pected eco­nomic poli­cies of more fis­cal spend­ing and bor­row­ing to boost growth and in­fla­tion lev­els. How­ever, it’s still not clear yet if the Fed will start re­spond­ing to th­ese poli­cies by ac­cel­er­at­ing rate hike ex­pec­ta­tions and whether a con­ser­va­tive Repub­li­can Congress will pass an ag­gres­sive fis­cal stim­u­lus plan.

Sec­tors in U.S. eq­uity mar­kets di­verged sub­stan­tially. Fi­nan­cials and industrials con­tin­ued to lead, send­ing the Dow Jones to a new record high while the tech­nol­ogy sec­tor was left be­hind weigh­ing on the heavy tech Nasdaq in­dex. If the di­ver­gence con­tin­ues within th­ese ma­jor sec­tors it could send warn­ing signs to in­vestors that the rally is not sus­tain­able, es­pe­cially since long-term fixed in­come ma­tu­ri­ties have started to look at­trac­tive.

In­vestors will turn their at­ten­tion to eco­nomic data with a busy cal­en­dar ahead. Growth fig­ures and in­fla­tion data from around the Eu­ro­zone and UK will at­tract at­ten­tion away from Trump. UK’s con­sumer prices are ex­pected to show prices edged up again in Oc­to­ber al­beit slightly from Septem­ber’s read­ing, mean­while the re­tail price in­dex is fore­casted to ex­ceed the 2% bench­mark for the first time since 2014. Of course, the UK’s ris­ing in­fla­tion has a lot to do with the pound’s slump, but an­other fac­tor to con­sider go­ing for­ward is oil prices which will start los­ing their in­flu­ence on in­fla­tion as they stand on the same lev­els they were a year ago. The same ap­plies to the Eu­ro­zone where ECB plans of ex­tend­ing QE pro­gramme seems to be chal­lenged when in­fla­tion re­turns.

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