Trump’s economy will be different

DONALD Trump will become president of the United States at noon on Friday in Washington DC (6am Saturday, New Zealand time), and markets are expected to react before the event.

Mr Trump, who has been constantly embroiled in controversy since his election on November 8, will take the Oath of Office and be sworn in as America’s 45th president.

After taking the Oath of Office, Mr Trump will make a speech, possibly lasting 20 minutes. However, with his unpredictable reactions to nearly everything in politics, the speech may be substantially longer.

Craigs Investment Partners broker Chris Timms said while no specific policy announcements were likely in the speech, it would still attract a huge amount of attention across the world and would potentially mark an important turning point in the political and economic environment in the US.

‘‘We could see some market reaction in the leadup to this over the course of the week.’’

The inauguration came as the global reporting season started in earnest, he said.

With a handful of companies having already reported, the next three weeks would be busy.

This week, about 50 S&P500 companies were scheduled to report.

Some of the higher profile names included Morgan Stanley, Goldman Sachs, Citigroup, IBM, Netflix and American Express.

Overall earnings growth of the S&P500 was forecast to be a ‘‘solid’’ 4.2%, and financials were expected to be the standout, Mr Timms said.

‘‘With the energy sector now cycling a more modest quarter, the substantial comparative losses we have seen during recent quarterly results have moderated to a more subdued 8% decline in earnings per share.’’

ASB chief economist Nick Tuffley headed his Economic Weekly publication with: ‘‘It’s the end of the world as we know it, with a new era starting’’.

The new president was likely to take the US in a different direction to what the rest of the world had become accustomed to, he said.

The exact changes and the impact on New Zealand were still difficult to ascertain but change was coming, he said.

‘‘This transition has the potential to generate considerable volatility in financial markets. Just last week, Trump hosted his first press conference since July and the lack of any concrete economic policies meant financial markets turned away from US assets on fears he won’t boost the US economy as much as he had suggested.’’

Continued lack of solid direction could create opportunities for importers and exporters in the next few days, and perhaps even in the first few week of Mr Trump’s administration, Mr Tuffley said.

Borrowing costs were likely to swirl around in the coming weeks not just due to Trump uncertainty but also the restoration of liquidity. The lack of interest on one side of the market created a lot of oneway upward flow, particularly at the end of 2016. As the weeks progressed, some sort of equilibrium should be restored, he said.

US bank stocks were expected to stay in favour with investors as long as earnings reports this week show an improving profit outlook.

Wells Fargo & Co, JPMorgan Chase and Bank of America started off the earnings season on a positive note sending the banking subsector up as much as 2.3% to its highest since February 2008.

The banks’ top executives expressed optimism on Friday about 2017 in their first public comments about earnings since Mr Trump won the election.

Federal Reserve chairwoman Janet Yellen is also due to speak this week on Wednesday and Thursday (US time), the days before Mr Trump’s inauguration.

The two drove markets last week with their speeches and the likelihood the Fed would need to raise its interest rates twice or three times this year to accommodate Mr Trump’s domestic policy aims.

Last Friday offered fresh evidence of US economic strength as reports showed retail sales and producer prices gained in December.

Since Mr Trump was elected, expectations have been set high and investors are now looking for hard evidence to support the uplift in confidence.

Other US data out this week includes the Consumer Price Index, industrial production, housing market index, housing starts, weekly jobless claims and the Philadelphia Fed business outlook.

❛It’s the end of the world as we know it, with a new era starting❜ — ASB chief economist Nick Tuffley