[Trump]Following our forecast of a Martin Luther King range bound Week rather than Day, this week promises to be one of the most interesting if not exciting markets in a long time. A week when some of our key themes for 2017 should come to the fore. The seeds sown by Donald Trump's election, the UK decision to leave the EU and the OPEC agreement should all come to some sort of fruition this week. And indeed volatile or variable volatility should remain a thorn for many traders as last week's lack of volatility could blossom into, in some cases extreme, two-way volatility. Not a market to miss. One of the major market tenets set after the US Election was the unusual and ultimately unsustainable triangle of rising US interest rates, rising stocks and rising Dollar on the back of a potentially expansionist new President [The Trump Effect]. Since the beginning of 2017 this triangle appears to have broken down as stocks have stayed strong but bond yields and the USD have retraced as the market has sought and so far failed to receive confirmation of this potentially inflationary boom. Indeed many have also jumped on Donald Trump's comments about the Yuan strength as a call for general USD weakness. Ultimately we believe that will be the end result of the Trump Presidency but not quite yet. [Trump]Matrix Trade The first 2-3 weeks of the year are often deceptive as previous correlations break down temporarily [into a new framework that often resurfaces later in the year] as traders seek and pursue different new trends. January sentiment is probably the most uncertain of the year. It is therefore no surprise that the EURUSD appears to be following what we have now named the 'Uncertainty Fractal' that the market followed during equally uncertain times in the run up to the Greek, British and Italian Referenda. [EURUSD]Matrix Trade We blindly assume uncertainty is bad for a currency but often uncertainty surrounding a negative impact event keeps the market within the range until there is greater resolution. The UK Government's decision to refer the terms of Brexit to Parliament and the Pound's sharp rally last week was eloquent testimony to this and probably further evidenced by the UK Supreme Court's decision this week that could well end the current wave of uncertainty. The early year breakdown in correlation is often manifest in erratic ranges that are typically ended by a market realignment on an event. Despite the lack of detail contained in the inauguration speech, this could be such an event and trigger another unsubstantiated and therefore unsustained phase of the triangle. This is supported by the now well evidenced Trump Fractal that served us well during the US Election campaign and indeed after. The US stock market [SPX] tends to act in a consistent even if often counter-intuitive way before, during and after every Trump event so far. [Trump]Matrix Trade If these two triggers are not enough to destabilize [and re-stabilize] markets then the weekend OPEC news promises to create possibly the most exciting Oil market we have seen the projected [Washington] Oil low in February. Sustained strength? With gross long positions in NYMEX futures and options among speculators at the highest on record, all we need is the now for pundits to call a major bull market. [Pundit fractal]Matrix Trade LAST WEEK The week started dominated by weekend reports that Theresa May’s would, on Tuesday, indicate Britain’s possible exit from the single market to achieve border controls. GBPUSD promptly traded down 180 pips (1.47%) in the Wellington session. Monday was Martin Luther King day and US markets were closed. Markets were generally flat despite the early action. In the Asian session NKY fell sharply by 2.4%, but NIFTY rose gently putting on 34 points (0.4%) no doubt helped by the Indian trade and inflation beats at 0630. Without US volatility GBPUSD had only recovered 20 pips by the end of the day. Tuesday’s European session was all about GBP. British PM May was finally decisive about Brexit, and gave parliament her 12-point plan (ironically also the number of stars on the EU flag). Having already started well with a CPI (inflation) beat at 0930, GBP soared all day, filling the weekend gap with ease, putting on 3.2% by the end. Although many have attributed this to a decisive May speech. the opposite is true. Sterling rallied because of the greater uncertainty surrounding the hitherto bearish Brexit process and, we believe, is front running the Government’s defeat in the Supreme Court on Tuesday. Either way the euphoria probably helped Sterling to its best day in 8 years and the produced a correlated drop in FTSE from our major 7360 target. Elsewhere, although SPX was flat, we saw a steady and pronounced fall in USD all day against commodities and currencies. The benchmark USDJPY fell 176 pips (1.55%) on the day. This may be attributed to Trump’s remarks on the Chinese currency being undervalued — CNY hit a 2017 high – which many have chosen to mean Trump favors a weaker USD. Note however that the USD weakness did not extend to 10 year yields, which started a rise which lasted all week. Wednesday was flat for indices (except for NKY which tracked USDJPY), whereas the USD reversed Tuesday’s weakness. Gold gave up all the previous day’s gains as did EUR, AUD and JPY. Oil faded sharply, as low as $50.89 at one point (3.55% down), although it fully recovered by the end of the week. UK Wages/Claimants at 0930 and US inflation beats at 1330 had little effect. The other story of the day was CAD following 36 hours behind GBP. After the earlier fall in oil, it was the BoC rate hold at 1500 which triggered a sharp exit from the loonie. It ended the day 217 pips (1.67%) down and continued to fall for the rest of the week. Equity markets were flat again on Thursday, as was USD this time with correlations breaking down as the market tried to pursue recent disparate trends. GBP and AUD rose (the latter despite mixed employment figures at 0030), but JPY and CAD fell. The ECB rate decision, as always created volatility. Interestingly, it is often the remarks not the figure that cause the effect. The hold decision at 1245 hardly moved EUR, but Draghi’s remarks at 0130 about inflation (or rather, the lack of it) and QE caused an instant spike down. However, after giving up 80 pips (0.74%) to 1.0588 in minutes, the single currency had fully recovered an hour before the end of the US session, and ended the week just shy of 1.07. Friday started well with China’s GDP and Retail Sales beat at 0200, and as JPY fell, NKY rose, to finish a V-shaped week only 0.79% down after a low point of -3.43% on Tuesday. Conversely, after ranging all week, NIFTY gave up 62 points (0.74%) on Trump protectionist fears. DAX followed NKY with a spurt up at the European open, and then ranged all day. GBP faded 78 pips (0.64%) on the UK Retail Sales miss at 0930, but recovered it all in the US session. FTSE of course reversed. The FTSE/GBP link is starting to look like NKY/JPY these days. The real pattern for the day was USD rising in Europe (against EUR, AUD, JPY, CAD and gold) and then fading into the Trump inaugural speech. AUD, EUR and GBP all made V-patterns for the day. We can see this most clearly through CAD, which gave up 100 pips in the European session, and then recovered that territory despite a CPI (inflation) miss at 1330. And notably, even 10-year yields faded into and after the speech, despite ignoring earlier USD stumbles in the week. Oil just rose all day, helped by weak USD, but more likely on OPEC remarks of “so far so good” prior to their Vienna weekend meeting to police output cuts. At the US Open, SPX had an fast spike up 0.35% on the open which completely faded away as the speech followed the inauguration at 1200EST (1700GMT). Trump’s inaugural speech was strong on rhetoric but not detail. Equities, bond yields and USD all faltered whilst he spoke and did not recover by the end of the session. THIS WEEK Next week see the first week of the Trump Presidency in action, and all eyes will be how fast and what extent he makes good on his campaign promises. There is now building concern, especially outside the US, that he may not. Actions speak louder than words, and in any event, history has shown that like communism, autarky does not create economic growth. During the weekend OPEC met in Vienna and confirmed that most countries are adhering to the output cut deal, indeed OPEC and Russia are ahead of schedule, and Saudi Arabia, Algeria and Kuwait have made even deeper cuts than required. Expect oil to rise next week, along with proxies such as CAD and NOK. Also on Sunday are the French leftist primaries, although these are of little significance, as Fillon for the Republicans is ahead in the polls. Monday is a quiet day for news, on Tuesday we have the long-awaited Brexit ruling by the UK Supreme Court. A decision to force parliament to debate it (and perhaps modify the terms) would be positive for GBP, although last week’s events have somewhat reduced the effect. Also of significance is the Italian Constitutional Court’s ruling on the law rejected by voters in December. Also on the calendar are German PMI at 0830, UK PSBR at 0930, and US Manufacturing PMI at 1445. Turkey and South Africa also have interest rate decisions. Wednesday starts with Australian CPI at 0030 (est 1.3%), and ends with NZ CPI (set 0.4%) at 2145. If these inflation figures come in higher, they could lead to rate rises, and accelerate the already impressive rises in these currencies this year, even against the surging US dollar. Between these two Asian sessions, senior White House officials meet the Mexican Foreign and Economy Ministers. On Thursday, Europe opens with the German Consumer Confidence report at 0700. At 0930, UK GDP figures are released. After that UK Brexit Minister David Davis takes questions in parliament, and Eurogroup President Dijsselbloem speaks at a Brexit conference. Expect GBP volatility. Japanese CPI is published at 2330 just before the Asian session opens. Chinese markets close on Friday for the Lunar New Year, and do not re-open until the following Friday Feb 3rd. Traders may take the opportunity to unwind positions this week, which may cause unintended consequences in other markets. The only economic release of significance is the US GDP at 1330, coupled with durable goods orders. Tue 24 0000 GBP Brexit Court Ruling (9-10am??) 0830 EUR German PMI 0930 GBP UK PSBR 1445 USD Manufacturing PMI Wed 25 0030 AUD CPI 0900 EUR IFO Business Climate 2145 NZD CPI Thu 26 0700 EUR German Consumer Confidence 0930 GBP UK GDP 2330 JPY CPI Fri 27 0000 CNY Chinese New Year's Eve 1330 USD US GDP & Consumption & Durable Goods NOW WATCH: Women are more attracted to men with these physical traits
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