China in Davos while Trump tweets
(Peter Rosenstreich, head of market strategy)
The symbolic significance of China’s Xi Jinping heading to Davos while Trump continues to trigger uncertainty on a wide range of topics from the USA should not be missed. Xi Jinping will become the first Chinese president to attend the World Economic Forum meeting in the Swiss Alps. In our view this global outreach by China comes at a time when Asian relations with the international community is at a crossroads. China is presenting the world with a stable alterative to counterbalance Trump's anti-globalization rhetoric. The President-elect was never planning to attend (President Clinton was the only sitting US president to do so) with advisor Anthony Scaramucci appearing as his representative. Given the global community's unease with Trump's unorthodox behaviour, it would be logical to expect a greater effort to calm nerves. We anticipate that 2017 will see China cement its dominance over Asia, not in military terms (as the US fears) but rather through trade partnerships to secure lasting relationships. In the short term, China will continue to struggle with growth and capital outflows yet in the long term an economic block defined by China will have an immense opportunity for demand. In actuality China's rebalancing strategy was only partially aimed at shifting from investment for export to consumption-driven growth, but also looking less toward the west and more towards Asia. China – US verbal war will continue to govern the headlines this week with Trump challenging the “One-China” policy and China's forceful rebuttal. Yet, in the longer term, China's strategy should not be overlooked.
US retail sales on the soft side, USD stronger amid risk-off move
(Arnaud Masset, market analyst)
December’s retail sales, released on Friday, came in rather on the soft side in spite of an upward revision of November’s figures. Advance retail sales printed at 0.6%m/m in the last month of the year, missing estimates of 0.7%, while November data was revised to 0.2% versus 0.1% first estimate. The strong figures came on the back of a pickup in demand for automobiles and gas station sales (+2.4% and +2% respectively) as the core measure - the one excluding automobiles and service stations - disappointed substantially, printing flat versus an expected rise of 0.4% (previous reading was revised to 0.3% from 0.2%).
All in all, the data showed that US consumers held back in December, failing to translate the strong Trump election rally into solid spending. The trend in core retail sales has been rather flat over the last two years with the 6-month moving average stuck below 0.5%, and sliding to 0.2% last month. Unless Trump delivers his stimulus package, we may have to deal with lacklustre consumption data over the next few months. For now, the market is waiting for Trump to provide some clarity but given the difficulty he has in delivering straightforward and coherent speeches, this may take sometime. This morning, the USD is getting stronger as Brexit fears pick up and the general risk environment worsens. US markets are closed for Martin Luther King’s day.
Markets become fearful ahead of Theresa May’s speech
(Yann Quelenn, market analyst)
The pound kicked off the market session down two figures and trading against the greenback below 1.20 for the first time in 32 years. The pair has since bounced back above this level.
On Tuesday, Theresa May will give a speech that some believe will be used to signal a hard Brexit and an exit from the European single market.
In the background, the Supreme Court are expected to give their final decision on the role of parliament concerning the triggering of Article 50. We believe that the chances of parliament blocking Brexit presents an underestimated risk.
Currency-wise, the market continues to wait for the doomsday effects of Brexit to kick in, a concern we do not share. The UK's most recent data supports our contrarian position. Long GBPUSD looks increasingly like the trade of the year.