The new President of the USA has been sworn in with relatively mute effects on equity markets as he kept a fairly neutral tone regarding his “good for business” stance. Equites did however manage a positive close, with the DJIA gaining 0.48%, the S&P500 gaining 0.34% and the NASDAQ 100 finishing higher by 0.24% as some traders decided to re-enter positions they squared prior to the inauguration.
The USD and hence the USD index, which measures the strength of the US dollar angst a group of its peers, was the big loser during the inauguration speech as we saw the Index fall back to the 100 support level after Trump spoke of the USD being too strong, reversing some of the previous strength inherent in the USD as buyers squared positions and new sellers entered at the relatively cheap level. One would have expected a larger drop in the USD given the comment but with the FED still on a path of tightening, which will see the interest rates raised at least twice this year, which would give the US a natural attractiveness as investors flock to the higher interest rates as the US continues to be the only major economy to have increased rates in recent times, making it highly attractive.
Going forward, markets will have to have their eyes not only on economic data but also on fiscal data as Trumps decisions and actions will either complement the FED or not. What will be of interest is how the two feed off of each other, the FED has reiterated over and over that this year would see at least 2, if not 3 rate hikes, data permitting and therefore any positive data out of the US will be positively priced in by markets while any worse than expected data out of the US economy will be negatively priced in. On the other hand, markets need to watch Trump and his new policies, with any mention in weakening the USD for a completive edge in global trading, which would secure jobs in the US while boosting exports, could undo any bullishness form the prospects of a rate hike thus driving the USD lower.