Opening Bell: Is The Trump Rally History?

 | Jan 12, 2017 07:11AM ET

by Eli Wright

The US dollar tumbled more than one percent yesterday and continues to trade a bit lower today, global stocks are down, US equity markets have fallen in pre-market trading, commodity prices have jumped, while Bitcoin tumbled and additional 14-percent.

The main reason for much of the above?

Disappointment at Donald Trump’s speech, as well as trader reaction to price activity on FX markets. Investors were expecting the press conference to provide details on the timing and scope of the incoming administration’s policies, including infrastructure spending, tax breaks, and trade agreements. Unfortunately for markets, the President-elect’s freewheeling speech failed to provide any clarity.

Overnight in Asia, markets reacted negatively to the dollar's decline after the speech. A stronger yen, which makes Japanese exports more expensive, sent the Nikkei lower. It closed down 1.27%, at 19,118.00. A similar effect was seen in China and Hong Kong; the Shanghai Composite fell 0.55% to 3,119.46, while the Hang Seng dropped 0.46% to 22,829.02.

In Europe, the FTSE is down 0.31% this morning, to 7,267.75; the DAX has declined 0.67% to 11,569; and the Stoxx 50 is 0.5% lower, at 3,290.50.

On Wall Street yesterday, stocks dipped in mid-day trading, but returned to finish the day slightly higher. The Dow closed up 0.5%, at 19,954.28; the S&P 500 rose 0.27%, to 2,275.32; and the NASDAQ gained 0.21%, to close at a new record high of 5,563.65.

In pre-market trading today, however, all three majors are lower: the Dow is down 0.17%; the S&P is down 0.21%; and the NASDAQ is down 0.25%.

US Treasury yields are down across the board. The 2-year yield declined to 1.153%; the 10-year yield is down to 2.318%; and the 30-year yield is 2.911%.

h3 Forex/h3

The US Dollar Index dropped more than one percent yesterday, down to 101.05, after Trump’s press conference. The negative tailwinds have continued today, it's down further, currently at 100.85.

Based on the President-elect's vague promise to "make America great again" after the election the dollar climbed to a 14-year high on trader optimism that Trump would deliver on this vague promise. However, as Priya Misra, the head of global rate strategy at TD Securities said :

“The market has been questioning this Trump Trade. We were looking for specific details on tax reforms and other pro-growth ideas that people have been pricing in since the election. The burden of proof is on the policies, and we haven’t seen any of that. The big Trump trade is on pause, stuck at this ’show-me-the proof’ type of level.”