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Week Ahead: All eyes on the Trump Inauguration
Updated Updated Mon, 2025 January 20 05:08
Markets have been waiting for 20th January and the 47th US President’s inauguration for some time, with trade policy and tariffs set to take centre stage. There is much uncertainty, about what specific powers Trump will use so market volatility will be high. Reports suggest that at least 100 executive orders are ready for signing on the new President’s first day in office. Consensus believes that initially, we will see trade policy, immigration enforcement and broad principles on deregulation. Any real news on fiscal policies will take longer to enact and come later in the Trump term.
The markets are seemingly set up for China tariffs to arrive fairly quickly, made possible by existing presidential authorities. The key question is whether Trump’s bark is bigger than his bite – does he kick off with big tariffs from day one, or these are phased in over time? Long dollar positioning is currently relatively stretched going into this second Trump administration, with stock markets more choppy over the past few weeks.
Fast implementation of tariffs will likely see more dollar upside as US Treasury yields move back up towards 5% on the 10-year. Gold could struggle initially in that environment. The flip side and a gradual stepping up of tariffs, of say 2-5% per month could see the greenback slide and boost gold bugs. Sectors of the equity market may react differently with energy, finance and crypto standing to benefit if Trump loosens policy substantially. Bank and energy stocks have already gained ahead of the inauguration while a sweeping aside of the regulatory overhang could push bitcoin to fresh record highs. In summary, the speed and realisation of all policies will be crucial for price action.
In Brief: major data releases of the week
Tuesday, 21 January 2025
– UK Jobs: The jobless rate is forecast to remain unchanged at 4.3%. Wage growth is expected to rise to around 5.5% from 5.2%. The latter is more important for the MPC. There is currently a strong chance that policymakers cut rates in February.
– Canada CPI: Headline inflation is likely to be relatively soft at 1.7% from the prior 1.9%. The core measures are predicted to be firm but are squarely in the Bank of Canada’s target range of 1.-3%. Rates now sit at the upper end of the BoC’s neutral rate estimate.
Friday, 24 January 2025
– BoJ Meeting: Markets have priced in around an 80% chance of a 25bps rate hike. That would mean 60bps of policy tightening since March last year. Inflation and wage growth data have been encouraging. Recent BoJ commentary has also hinted at hikes, barring any Trump disruptions.
– Eurozone & UK PMIs: The eurozone composite remains below 50 which denotes contraction. This is largely driven by the German economy. UK data may soften with sentiment and consumer confidence relatively downbeat.
