Can Trump Live Up to High Market Expectations?
US futures are edging higher ahead of the open on Wednesday, as attention turns to Donald Trump's press conference which comes just over a week before his inauguration.
Markets have been buoyed in recent months by the prospect of growth friendly stimulus measures promised by Trump during the election campaign including tax cuts and fiscal stimulus. The negatives associated with a Trump administration including a trade war with China leading to protectionism have so far been brushed to one side which could be a big downside risk for the markets this year.
Investors Seek Assurance from 'Rookie' Trump
With markets having priced in so much already from the Trump administration despite there being a serious lack of detail on the matter, and having overlooked the risk factors, there may well be potential for Trump to fail to live up to expectations in today's press conference. Trumps speech immediately following the election brought calm to concerned investors as he focused on togetherness and the need to spend more and create higher quality jobs. He barely mentioned the protectionist measures that had been a substantial part of his campaign and had worried investors in the lead up to the election.
Should he tread a similar line today then markets may once again be buoyed by his focus on growth friendly policies as opposed to populist measures that threaten to destabilize and inhibit global trade and growth. Should he focus on protectionism it will be very interesting to see how markets respond because they have strongly bought into growth friendly policies. It will also be interesting to see whether he remains committed to the kind of fiscal stimulus that markets are now expecting, given that many have questioned the need for such measures at this stage of the recovery. Should he backtrack on this promise at all then things could start to unravel quickly in the markets after months of stimulus induced rallies.
Turkish Lire Tanks in Asia
While Trump's press conference is likely to make the headlines today and be the main driver of market sentiment, we will also hear from an FOMC policy maker and get UK GDP and oil inventory data. William Dudley is due to speak later on in today's session and may provide some colour on what Trump's comments affect his own outlook, if at all. NIESR will provide their GDP estimate for the UK in the final quarter of 2016, which could offer some insight into how the economy performed at the tail end of a turbulent year. EIA will also release inventory numbers for last week which will be of interest following last week's draw of more than seven million barrels and after API yesterday reported a small increase.