The Daily Prophet: The Trump Trade Gives Way to the Reckless Trade

Robert Burgess is editor of Bloomberg Prophets.
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That didn't last long. The Dow Jones Industrial Average spent a total of three days above the 20,000 level before it came crashing down today. President Donald Trump’s order on immigration is raising concern that he is prioritizing the isolationist policies he touted on the campaign trail. That's important because markets got a boost in the weeks after the Nov. 8 election from the promise of a pro-growth agenda centered on fiscal stimulus and tax cuts. Investors are still waiting for news on those fronts.

The selloff wasn't just isolated to the U.S. The MSCI All Country World Index slumped the most since Oct. 11 at one point.  All 11 industry groups in the benchmark fell, with airlines particularly hard hit.  For U.S. stocks, it was the worst drop this year.



“Investors in general are feeling Trump is a bit reckless’’ on the immigration ban and dealing with Mexico on trade issues, said Terry Morris, managing director of equities at BB&T Institutional Investment Advisers in Wyomissing, Pennsylvania. “It creates friction worldwide and is causing uncertainty.’’

SELL AMERICA?
Few people are ready to declare the start of a "Sell America'' trade in markets, but something is going on with the dollar. After posting its best quarterly advance since 2008 in the final three months of last year, the Bloomberg Dollar Spot Index has been on the defensive. It's down almost 2 percent in January, heading for its worst month since April. It fell again today, even though the thinking is that protectionism would spur inflation, which would spur higher interest rates, which in turn would attract foreign investors to the currency.
 

 

EUROPEAN JITTERS
Europe is back on investors' radar screens, and not in a good way. Bonds and stocks fell across the region on Monday. French and Italian election campaigns stoked concerns over the rise of anti-euro political forces, even as inflation in Germany signaled that the European Central Bank may soon cut back on its extraordinary stimulus measures. It wouldn't be a European crisis without Greece, which admitted that two-thirds of the actions creditors have demanded for the disbursement of the next tranche of emergency loans have yet to be completed.



MICROSOFT RETURNS
There were no worries in the corporate bond market, where Microsoft Corp. is looking to raise $17 billion to refinance its shortest-dated debt less than six months after it sought funds for its LinkedIn Corp. acquisition. The tech giant, one of only two non-financial companies with an AAA debt rating from the two biggest credit rating firms, plans to sell bonds in seven parts. The longest portion of the offering may be a $2 billion 40-year bond. The market for investment-grade corporate bonds have held up this year, with yields falling to within 1.2 percentage points of benchmark U.S. Treasuries, down from about 1.25 percentage points at the end of 2016.


PRECIOUS METALS
Investors are deciding it’s a good time to own gold and other metals that are seen as havens in times of crisis. Long-only exchange-traded funds backed by precious metals have attracted about $220 million this month, on course for the first monthly inflow since October, data compiled by Bloomberg Intelligence showed. Almost $1.6 billion poured into the 10 precious-metals ETFs that have attracted the most money in January, with Frankfurt-listed Xetra-Gold ETF drawing in more than any other commodity ETF, according to Bloomberg News's Luzi Ann Javier. Gold futures are headed for the first monthly gain since September, while silver, platinum, and palladium have all gained from 7.5 percent to 9.3 percent.



TEA LEAVES
It was this time last year that the Bank of Japan roiled markets by cutting interest rates below zero. Not only was the move unexpected, it also sparked a debate over whether the world's major central banks were no longer confident in their abilities to spark growth if they had to resort to such drastic measures. The BOJ meets again Tuesday, and all 42 economists surveyed by Bloomberg this month predicted no change to the central bank’s key policies. Instead, investors will look to Governor Haruhiko Kuroda's news conference for clues as to when the era of negative rates in Japan may come to an end.   


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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Robert Burgess at bburgess@bloomberg.net

To contact the editor responsible for this story:
Max Berley at mberley@bloomberg.net