Good morning. Here’s what’s happening as the Trump era begins.
First, the scoreboard: (8:05am AEDT):
- Dow: 19732 -72 (-0.4%)
- S&P 500: 2266 -6 (-0.3%)
- SPI 200 Futures (March): 5625 -11 (-0.2%)
- AUDUSD: 0.7561 +0.0054 (-0.7%)
1. Stocks reverse: The Dow Jones Industrial Average headed for its first five-day drop since Donald Trump’s election led by Utilities and financial shares. Treasury yields climbed to the highest level of the year. The dollar pared gains as Steven Mnuchin, Trump’s Treasury nominee said the dollar was “very, very strong.” Australian shares look set for a slightly weaker open following the US lead.
2. Mnuchin’s trick: Trump’s treasury pick endorsed a classic budget trick that could steal from an entire generation. “We do believe in dynamic scoring and with the appropriate growth,” said Treasury nominee Steve Mnuchin. “I think we want to make sure that tax reform doesn’t increase the deficit.” Those two sentences actually contradict each other because “dynamic scoring” is just a fancy way of justifying massive increases in the national debt. Increases that would result from Trump’s plan to spend $US500 billion on infrastructure development while carrying out dramatic tax cuts. He also touted the revitalization, with tweaks, of a decades-old regulation on banks repealed nearly 20 years ago. He was referring to Glass-Steagall Act, which was was passed in 1933 and required banks to separate commercial deposit banking from investment banking.
3. Soros says Trump will fail: Billionaire investor George Soros says US President-elect Donald Trump is a con man and a would-be dictator. Soros, 86, described why he wants the president-elect to fail while speaking at the World Economic Forum in Davos. He supported Hillary Clinton during the presidential campaign.
4. Goldman Optimism: Equities, especially in the US, are richly priced and suggest confidence in the economic expansion. But bonds are priced as if a recession lies ahead even after the late 2016 interest rate increases. Which Goldman Sachs thinks is wrong.
5. Data today: The big one is China economic growth data. GDP is expected to grow 6.7% year-on-year. If correct, it will be the first time on record that GDP growth was unchanged for four consecutive quarters. The Reuters Tankan Index for Japan will be released while UK retail data is also due. Philadelphia Federal Reserve Bank President Patrick Harker and San Francisco Federal Reserve Bank President John C. Williams speak. Janet Yellen, US Federal Reserve chair, will also speak. Later in the day market attention will switch to the inauguration of Donald Trump as the 45th president of the United States.
6. Iron ore weakens: Iron ore markets weakened on Thursday amidst thin, holiday-impacted trade. According to Metal Bulletin, the spot price for benchmark 62% fines fell by 1.3% to $US80.99 a tonne, leaving it at a one-week low. The move in spot markets followed weakness in Chinese futures, with iron ore and rebar both trading lower during the session.
7. Aussie Dollar: The Australian dollar put in a resilient performance on Thursday, rallying against all bar its Kiwi counterpart despite the release of strong US economic data, a lift in US bond yields, weakness in global stock markets and a slide in the iron ore price
8. Goldman recommendations: Goldman Sachs is recommending investors stay long the US dollar, Chinese yuan, India, Brzil and Poland equities and the S&P GSCI commodity index. It says the first half data will be key to understanding the path ahead for emerging market exports given much of the improvement in the past year came from higher commodity prices.
9. American dream no more?: One of the most important parts of the American Dream is the hope that your children will be better off than you are. Unfortunately, that is becoming less common. The likelihood that children at age 30 had a higher inflation-adjusted income than their parents did when they were the same age has been dropping over the last several decades, according to a recent study by Stanford economist Raj Chetty and his team at the Equality of Opportunity Project cited by Jeff Gundlach in his presentation released earlier this month.
10. Away from London: In the 48-hours since Theresa May delivered her Brexit speech in London signalling that Britain will leave the Single Market, HSBC, JPMorgan, and UBS have all warned about job relocations, and there are reports that Goldman Sachs is planning as much behind closed doors. At least 4,000 jobs likely to go, with no concrete numbers from UBS or JPMorgan. All four of the above mentioned banks have warned about possible job losses in the past too and many more finance firms are likely mulling similar changes. Meanwhile, the Mayor of London Sadiq Khan is telling business and political leaders that “hard Brexit” is terrible for the European Union as well as Britain because if businesses relocate, it will be to Asian countries or the US, not other European cities.
Friday Bonus – a Wall Street problem: According to a survey of over 1,000 banking employees by strategy consulting firm Quinlan & Associates, the number one of source of dissatisfaction in Wall Street isn’t compensation. Instead, promotions (or the lack thereof) are more important to most of those working in finance. In total, 37% of respondents said they were extremely dissatisfied or dissatisfied with promotions (PRM in the chart below). In a related area, 34% said they were dissatisfied with mentoring at their current employer.