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COMMENTARY
Mexico & Trump – a key call in emerging markets President Trump’s anti-Mexico rhetoric has made Mexican assets one of the key calls in emerging market debt. I have just returned from a research trip to Mexico where I met with local economists, analysts, and corporate bond issuers. Below are a number of observations from my time there. Donald Trump won the election on a fairly protectionist rhetoric – with a special focus on Mexico – and the pressure to fulfil electoral promises (unlike most seasoned politicians) is therefore likely to see the implementation of some of the things he has proposed. Whilst the intentions are clear, the measures that he will implement to satisfy his electorate are more uncertain. Despite the symbolic nature, building a wall at the Southern border of the US would have a limited impact on the Mexican economy. However, other policies that Trump supports may have a significant impact on the economy and asset prices. (Bond Vigilantes) When do rising yields become a headwind for equities? Interestingly, on a very strong day for equities, the majority of e-mails that I fielded yesterday involved bonds. From sell-side sales traders, and from retail traders alike, either to ask what I thought, or to offer their own opinion, there seemed to be a theme. Traders want to know: "At what point do rising yields become a headwind for equities?" The answer is relatively complex. To this point, the rise in interest rates has been a market tailwind. The financial sector led the post-election "Trump Bump", and then led equity markets sideways to slightly lower for a month. There is no doubt that higher rates are a good thing if you are invested in banks and consumer finance stocks. (The Street, continue) US Q4 GDP Preview US GDP in Q4 is forecast to print an annualised 2.2% QoQ. While the Fed's December economic projections expect 2016 growth at 2.4%, there seems to be an interesting divergence between the Fed’s own econometric models, and the NY Fed’s GDP Nowcast tracking growth at 2.1% annualised, while the Atlanta Fed’s GDPnow is running at a clip of 2.9%. If uncertainty is evident in the models and forecasts for Q4, going ahead, it may become an even more tricky exercise. In Q4, the rate of GDP growth is seen easing from Q3 levels — which was the best rate in two years — on the back of the widening trade gap, with the dollar’s moves also providing some forecast risk. Until President Donald Trump’s policies are fully announced, this trade uncertainty will remain. “The future effects of trade on US output are rife with uncertainty with regards to the evolution of policy and the value of the dollar,” Moody’s analysts write. “But the underlying pace of consumer spending is holding firm, getting a lift from the recent upside surprise in auto sales.” Potentially offsetting the trade ‘wildcard’ is stock building, which is seen contributing to growth. (Livesquawk) Top Fed forecaster BNP Paribas sees hikes in every quarter in 2018 The Federal Reserve is about to go rapid-fire on interest rates, boosting them in the second half of this year, and following that with a rise in every single quarter of 2018, according to BNP Paribas SA, which expects the tightening to strengthen the dollar and push gold down toward $1,000 an ounce. The U.S. central bank is seen raising borrowing costs later this year given the fiscally expansive policies proposed by Donald Trump, and the new president’s agenda may help to lift wages in 2018, hoisting labor costs, the bank said in a Jan. 25 report. BNP was the top gold and precious metals forecaster in the fourth quarter, according to data compiled by Bloomberg. (BBG)
DATA
POLITICS/GEOPOLITICS
GOVT/CBANKS
BREXIT
C&E
FIXED INCOME
FOREX EQUITIES
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