Fact from reality

15 November, 2016

Currently it’s very hard to know what some asset markets, sectors and currencies are trading on. Take sterling’s strong rise in the post US election period, which has defied decent explanation. US tech stocks have been under consistent pressure over the past few sessions, this at a time when the boarder market is holding up well. Is this down to fears of changes in immigration policy? The dollar as well. Some say it’s because of fears of inflation and higher Fed policy. More conceivable is that the bond market is driving the dollar move, with yields rising sharply on the fear of higher public spending. Higher interest rates normally push a currency higher. Lower gold (even in light of the dollar move) is not indicative of a fear of inflation. But the fact that the narrative is not always clear just underlines the extent to which the uncertainty regarding the policy of the incoming US administration is causing some sharp disconnects in markets.

For today, we have some distractions for the UK in the form of UK inflation numbers, with the headline rate seen rising to 1.1% (from 1.0%), although risks are to the upside given the upstream pressure from the falling pound. Thereafter we have US retails sales data at 13:30 GMT, but data is going to take a back seat in the US, given that the Fed move next month is now priced as a near certainty. The dynamics of Trumpanomics remains the primary focus for now.

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