We will soon be approaching that time of year again where the American import of ‘Black Friday’ lands. Queues of people pushing each other out the way to get to that toaster that they can’t do without. It brings a tear to the eye. Not for sentimental reasons but one of despair. We have also welcomed in the slightly odd ‘tradition’ of High Street stores and Retailers showcasing their wares in the form of ‘clever’ adverts. Do we really care if a dog bounces on a trampoline for no apparent reason at all? With inflation creeping up and the exchange rate taking its toll maybe, just maybe, they should look at reining back spending the GDP of a small country on these ‘clever’ adverts. Hopefully Donald Trump bans them.

‘The Donald’ remarkably won the US election, due in no small part to the ineptitude of the dynastic Clinton. The world now goes off on another tangent after ‘Brexit’ earlier this year. Market reaction was limited on the night/early morning of the election. We had the expected dip in the US Dollar although the market is a fickle mistress and we have since had a rebound in both the US Dollar and sentiment. We had a huge Bond sell off (Government not James) to the tune of circa $1 trillion USD with expectations of higher and faster growth and higher inflation from the potential policies of the Trump administration.

Investors will be looking at riskier assets such as shares with stronger growth making them more attractive whilst higher inflation will take their toll on the value of bonds over time. What are the likely Trump policies? He will look to renegotiate trade agreements, he will be cutting and simplifying the tax structure and he will look to repatriate offshore profits back to the US to continue his theme of ‘America comes first’. The main element I think is the likely change to fiscal policy from ultra-low interest rates. I expect infrastructure projects to become front and centre. This ties in with the likely route the UK will go down when Philip Hammond (UK Chancellor of the Exchequer) gives his Autumn Statement and is likely to announce his infrastructure investment plans. It will be a few weeks before we start to see things take shape and settle down although I expect EM (Emerging Market) currencies that are trade dependent to be sold off in that time. Asian equities will likely take a kicking with Donald Trump’s Anti trade announcements and I expect the Euro to be sold off with uncertainty increasing over Italy, who have an election on December 4th. Will the global anti-establishment ‘movement’ continue apace with the election of periphery candidates in Italy, France? I think we are entering a new era of scaling back globalisation with a shift to more of a protectionist view. The balance has to be struck correctly and that is the challenge we now face in the coming years.

What does this shift mean for Sterling/US Dollar? You can view the graph below on the movements last week.

Sterling had a stellar week shifting higher against a basket of 31 currencies. Cable (GBP/USD) challenged the dizzy heights of the high 1.26s. Where now? I still expect Sterling/US Dollar to shift lower going into year end. Not hugely although I do expect it to push lower. Evidently, market attention is going to now shift on a daily basis from the US and Trump to the UK and all things ‘Brexit’. The UK will take a backseat from the media this week so any substantial moves on Sterling/Dollar will likely be influenced from the US.

We have a heavy data calendar this week with Theresa May, (UK Prime Minister) speaking this evening. We then have UK inflation data out tomorrow morning where expectations are for a print of 1.1 percent which will be a two year high. We are still some way off the target rate of 2% although we’ll likely overshoot that next year. Indeed, some price rises have already started to filter through with Marmite being the high profile in the media example. Even Toblerone bars have even been altered, just before Christmas! The audacity.

Will the UK raise, lower or keep interest rates on hold with the change in economic conditions and inflation outlook? I’d expect the UK to keep rates on hold so I don’t see Sterling moving hugely in either direction for the time being. Will the US raise rates in December? This was expected as a near certainty if Clinton won although that is now subject to debate. I would still expect a rate rise from the US and we have Federal Chair Janet Yellen speaking on Thursday that should provide us with more clarity on the thought process. If you have a US Dollar requirement to convert into Sterling take advantage of the change in direction. If you think sentiment will continue to prove advantageous to the US Dollar longer term then consider placing a market order to the downside. Contact a member of the Aston team to discuss appropriate levels.

Buyer of USD from Sterling? Try and take advantage of any movements on the weakness of the US Dollar through utilising market orders. You can contact the trading team to implement these.

The shift in global politics now puts the Eurozone into sharper focus. As we discussed many months ago ‘Brexit’ is not solely a UK issue. I expect the Eurozone to be heavily scrutinized now we have the UK referendum and US election out the way. Italy is next up. They have systemic problems in the banking system and how the Italian election goes will be crucial for the Eurozone. We have GDP data out of Italy tomorrow. As mentioned previously, I expect EUR to continue to be sold off. If you look at EUR/USD it has taken a hammering in recent traded and tested the mid 1.07’s in early trading. In addition, we have had a large shift higher in Sterling/Euro as can be viewed on the graph below –

After the recent volatility and risk events we may get a period of calm. Although, this year has proven to be rather more choppy than most.

I would suggest it would be worthwhile getting in touch with a member of the Aston team to discuss your upcoming requirements going into year end and the beginning of Q1 ’17. Have you hedged any of your exposure? Early next year for the UK will prove to be more challenging than I think many are willing to admit yet. Sterling may prove to be vulnerable to the downside.

It will be interesting to see how things unfold in the coming weeks. The world hasn’t ended with ‘Brexit’ and Donald Trump becoming President. Things will take a different course and everyone has to prepare for uncertainty. I’m not going to say what everyone seems to like saying these days “The only certainty is uncertainty”. Oh, I just did.

Have a great week and any questions please do let me know.

Written by Liam Alexander.