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Stock Markets Get Their Own Travel Orders As Trump Trade Comes Unstuck

Published 31/01/2017, 05:49
Updated 03/08/2021, 16:15

Europe

It’s been a disappointing start to the week as we head towards the end of January, as investors digest the latest executive order from US President Donald Trump, which has prompted large scale sell-offs across the board for European stocks, as concerns rise that the US may become a much less predictable place to do business.

For all the early optimism about the so called “Trump trade” it would appear that for some the rose tinted glasses may well be starting to fall away as they digest this new entirely predictable turn of events.

As for the FTSE100 for all the early January optimism at the beginning of the year as we broke above the previous peaks of 7,120 to reach new all-time highs at 7,354 seen in the middle of the month, we’ve now come about full circle. In the space of the last two weeks these early gains have slowly disappeared with the end result that we run the risk of finishing January in negative territory, with only a day to go.

Vodafone (LON:VOD) is amongst the best performers after announcing that it was in talks to merge its struggling Indian operation with Idea Cellular. At the end of last year the company wrote down £5bn on the business as it struggled to generate a decent return, due to a fierce price war against its main key rivals.

By joining up with one of its main rivals it would appear Vodafone hopes to mitigate the effects of these losses in an effort to keep a floor under prices, which have been falling sharply since September. This morning’s announcement could also be a management attempt to get out in front of what could be a disappointing trading update when it reports to the markets on Thursday this week.

Dixons Carphone (LON:DC) is also doing well after being upgraded to buy by Goldman Sachs (NYSE:GS).

The announcement that the UK government has reduced its stake in Lloyds Banking Group (LON:LLOY) even further doesn’t appear to have helped the shares in this instance, as they pull back from their highest levels in six months.

Tesco (LON:TSCO) shares have slipped back to the bottom of the FTSE100 after their Booker inspired Friday pop as voices grow for the Competition and Markets Authority to look at the deal over fears that it could give the UK’s number 1 food retailer an unfair advantage in terms of competition in the smaller local retailer space.

US

US markets opened lower today with the Dow dropping below 20k, taking the lead from weak European markets as investors wake up to the downside of what a Trump presidency might mean for risky assets. The weekend executive order to implement more stringent vetting procedures to visitors to the US from specific destinations, as well as a wider travel ban, could well be the beginning of this realisation, as investors shed their goldilocks blinkers.

While the US has rowed back somewhat on the scope of the ban, with respect to green card holders the new policy has elicited a fierce backlash from US businesses with a number of US CEO’s coming out strongly against the policy, as concerns rise that this could well be the start of wider changes to the US immigration and visa system.

It is perhaps no surprise that the tech sector has been the most vocal given that its highly skilled workforce has a higher proportion of overseas workers due to the higher skill set required, and their use of the H1-B visa system which is widely used by US companies to plug these skills gaps.

With a bill already going through Congress on this very point looking at the eligibility criteria surrounding the visa’s, technology companies may well find their costs going up, as well as their ability to recruit highly skilled staff much more constrained. Amongst the decliners we’ve seen Google’s Alphabet (NASDAQ:GOOGL), Facebook (NASDAQ:FB) and Apple (NASDAQ:AAPL) all slip back.

Travel stocks are also on the slide with Delta, and American Airlines sharply lower.

FX

The US dollar has had a rather mixed day of things as economic data came in somewhat mixed. Core inflation for December came in at 1.7% in line with expectations, while personal spending for December jumped 0.5%, more than expected.

The Japanese yen has been the biggest gainer as investors steer clear of the more risky currencies as investors start to lose their rose tinted glasses as to what a Trump presidency might mean for the US economy.

The euro has slipped back after the headline number for German inflation came in slightly below expectations at 1.9%. This was a surprise given that in some of the German regions the CPI number was much higher, in some areas as high as 2.4%.

Commodities

Gold prices have stayed fairly firm as the US dollar has come under some pressure in the wake of the weekend events.

Crude oil prices have slipped back after the US rig count jumped to a 14 month high of 712 undermining the optimism that the cut in OPEC production would create a supply shortage. Last week’s inventory data showed that supply was rising faster than demand again.

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