Some very important – and spot on – thoughts from Bloomberg’s Richard Breslow, former FX trader and fund manager, regarding the perplexing Trump “rally”
When the U.S. decided to put America first this week, who could have thought it would play out in the financial markets quite so quickly and starkly? Domestic equities are flying. Contrasted by the ones in global emerging markets that are taking it in the neck. Several Asian countries had to intervene in their currencies this morning to stem the sell-off.
The storyline is based on the presumption that America can thrive no matter how the rest of the world gets on. The ultimate extension of decoupling theory. A risky and uncharted assumption to make.
U.S. financials aren’t flying — they’re soaring. The chart of the S&P financial sector index looks like a fat-finger misprint rather than orderly trading. The central bank put that has been the basis of so much of monetary-policy intentions has gone away. Only to be replaced with something better. Kill off the regulations that have been enacted since the financial crisis. “Mortimer. We’re back!”
A banker friend of mine who had told me a week ago that I had a patriotic duty to vote for Clinton wrote to me last night that he doesn’t know what policies the new president will enact, but it sure has been fantastic for his portfolio. Gone were the worried references to the “Football.”
Lloyd Blankfein said, “The policies he’s (Trump) committed to are very market- and asset-friendly.” Traders don’t spend a lot of time worrying about social policy when they are at work.
Meanwhile, the MSCI emerging market index is down about 4.5% since Tuesday. The EM currency index is sitting on its 200- day moving average for the first time since March.
China, on the other hand, the one that is supposedly to be punished for misdeeds, is enjoying a weaker currency that only helps its export machine, a Shanghai composite at the highest level since early January and more and more neighbors looking to cozy up.
No choice but to trade the market as it is being discounted. But worth noting there are some disconnects that shouldn’t be dismissed outright.
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