Donald Trump is finally in power, marking a new era. His policy plans in the first couple of weeks will override fundamentals. Markets spent more than two months pricing in growth policies promised, lower corporate taxes, and deregulations. Now it is time to deliver, as markets will move on actions rather than words.
U.S. dollar bulls were not really impressed with the new President's inauguration speech, as it was focused more on protectionism and lacked concrete plans to drive growth. Repealing Obamacare, building a Mexican border wall, and withdrawing from the Trans Pacific Partnership was not the kind of news investors wanted to hear, they needed to know when pro-growth fiscal policies will come into play and more importantly whether congress will approve them.
The days and weeks ahead will likely see volatility increase in equities, fixed income, and currency markets. Investors are already buying exchange-traded products that track volatility; this explains the level of expected uncertainty going forward.
The week ahead will also see U.S. earnings season move into high gear with more than 20% of S&P 500 companies reporting fourth quarter results including Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), McDonald’s (NYSE:MCD), Verizon (NYSE:VZ), Johnson & Johnson (NYSE:JNJ), Boeing (NYSE:BA), eBay Inc (NASDAQ:EBAY), and AT&T (NYSE:T). According to Factset, 61% of the companies that reported results so far managed to beat profit estimates, while only 47% managed to beat on revenues.
On the U.S. economic data front, all eyes will be on Friday’s U.S. Q4 GDP release. Growth is anticipated to slow significantly from Q3 3.5% to only 2.2%, as net trade expected to turn negative. Homes sales, services PMI’s, trade balance, and durable goods are also on the agenda for next week.
It will also be an interesting week for sterling as U.K.’s Supreme Court will eventually deliver its ruling this Tuesday on whether Prime Minister Theresa May can activate the process for Brexit without parliamentary approval. We highly expect that the court will rule in favor of Parliament’s approval to trigger article 50, but any spike in sterling is likely to be short lived.
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