While US stocks closed near session, and all time highs on Friday, the first green close on inauguration day in over 50 years, Monday has seen a modest case of buyer’s remorse, with European stocks sliding, Asian shares mixed and U.S. futures lower as the dollar weakened for the 3rd consecutive day to a six-week low, dropping as much as 1% against the Yen, as anxious investors awaited more details of Donald Trump’s policies, or – as Reuters put it – the “Trump reality set in.” While European shares and US equity futures sold off in early trading, tracking the USDJPY, the now traditional buying levitation wave has emerged, pushing US futures close to unchanged on the session.

The modest risk off session,  which comes after world stocks hit multi-year highs earlier this month on expectations Trump would boost growth and inflation with extraordinary fiscal spending measures, has seen shares in developed markets fall with the dollar, while lifting metals and Treasuries after Donald Trump offered little more on plans to boost growth while stirring concerns over protectionism in his first days in office. Europe’s Stoxx 600 Index dropped to its lowest level this year, while U.S. futures slid and the dollar fell against all major peers. The weaker currency pushed aluminum to the highest in more than a year, while ten-year Treasury yields fell a second day.

“The focus this morning is on the protectionist rhetoric and the lack of detail on economic stimulus, so it’s a nervous start (to the presidency),” said Investec economist Victoria Clarke. “The other concern is how the Fed interprets Trump’s stance, the worry being the less he does on fiscal stimulus the more nervous they may get on pushing the rate hikes through.”

While the U.S. President’s campaign-trail promises to boost growth and spending helped drive a post-election rally in equities and the dollar, by Monday, investors were calling into question how words would be translated into actions. So far, Trump has focused on a feud with the press over attendance at his inauguration rather than offer concrete plans, leaving investors in limbo. As the chart below shows, while stock dispersion may have risen in recent weeks, cross-asset correlation remains as high as ever, with most asset classes trading largely as a continuation of the Trump trade.

“The markets and a lot of international investors, whilst they’re nervous about Trump’s geopolitical and trade aspirations, have wanted to believe the reflation trade,” Neil Dwane, a chief investment officer at Allianz Global Investors Capital LLC told Bloomberg Television. “We’re seeing now is that it is going to be hard. The optimism was always way ahead of what Trump would be able to deliver and now you’re seeing some profit-taking.”

Rabobank analyst Michael Avery said a more protectionist United States could lead to a U.S. dollar liquidity squeeze, with Mexico and Asia likely the most badly hit. “We would see outright confusion over what currency to invoice, trade, and borrow in: a 19th century world of competing reserve currencies in different geographic zones, but without the underpinning of gold,” Avery said in a note. The problem would be exacerbated if China tightens capital controls further, he said.

Across global equities, the Stoxx 600 benchmark index fell to its lowest level since December. Generali jumped as much as 7.1 percent on speculation of a takeover bid for the Italian insurer. Spanish lender Banco de Sabadell dropped after disclosing that the maximum amount it might have to repay to clients in the mortgage-floors ruling exceeds the last two quarters of profit. Other Spanish banks also dropped as clients prepare to claim back interest payments. European stocks fell 0.7 percent and the broader Euro STOXX 600 fell 0.6 percent in early trades on Monday, both hitting their lowest level this year so far.

Japan’s Nikkei dropped 1.1% while shares in Australia dropped 0.8 percent after Trump’s administration also declared its intention to withdraw from the Trans-Pacific Partnership (TPP), a 12-nation trade pact that Japan and Australia have both signed. Other Asian shares were more resilient, however, in part due to the dollar’s weakness, and MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3 percent.

The U.S. Federal Reserve, which has indicated that it expects to raise its benchmark interest rate three times this year, is due to hold its next meeting on Jan. 31 and Feb. 1.

S&P 500 futures dropped 0.2 percent, while the main gauge closed 0.3 percent higher Friday.

The nervous start on Monday saw safe haven assets in demand. The yield on Germany’s 10-year government bond, the benchmark for the region, led most euro zone bonds lower, dropping 4 basis points to 0.32 percent in early trade. This followed 10-year U.S. Treasuries yields, which fell to 2.43 percent, after having risen briefly on Friday to 2.513 percent, its highest since Jan. 3. Spot gold prices, meanwhile, rose on Monday to their highest in two months.

Money managers will be dissecting earnings from some of the world’s largest companies this week with Alphabet Inc., Samsung Electronics Co. and Alibaba Group Holding Ltd. all reporting results.

* * *

Bulletin Headline Summary From RanSquawk

• European equities have kicked the week off on the backfoot with underperformance in financials and macro newsflow relatively light
• FX markets have seen cautious trade in the lead USD pairings, led by the USD/JPY pullback below 114.00
• Looking ahead, highlights include potential comments from ECB’s Draghi and Praet

Market Snapshot

• S&P 500 futures down 0.2% to 2262
• Stoxx 600 down 0.3% to 362
• FTSE 100 down 0.6% to 7152
• DAX down 0.4% to 11581
• German 10Yr yield down 2bps to 0.4%
• Italian 10Yr yield up less than 1bp to 2.03%
• Spanish 10Yr yield down less than 1bp to 1.5%
• S&P GSCI Index down 0.2% to 398.8
• MSCI Asia Pacific up 0.2% to 140
• U.S. 10-yr yield down less than 1bp to 2.46%
• Dollar Index down 0.35% to 100.39
• WTI Crude futures down 0.8% to $52.81
• Brent Futures down 0.5% to $55.24
• Gold spot up 0.2% to $1,213
• Silver spot up 0.2% to $17.13

Top News

• Dollar Drops as Trump’s ‘America First’ Speech Unnerves Traders
• Trump’s Vow to Break From OPEC Oil Imports Echoes Old Refrain
• OPEC and Friends Agree on Way to Monitor Oil Cut to End Glut
• United Air Lifts Halt After Computer Failure Grounded Flights
• List of U.S.-China Tension Losers May Include Nike to Lenovo
• Apple-Supplier Foxconn Weighs $7 Billion U.S. Display Plant
• Yahoo Faces SEC Probe Over Multiple Data Breaches, Journal Says
• Canada Signals Possible U.S. Trade Deal That Excludes Mexico
• Beware the Hedge-Fund Wipeout in Treasuries as Bearish Bets Soar
• Amazon Said to Sign Contracts With Auto Parts Makers: NYP
• GM, Mastercard Want Your Car to Pick Up the Tab for That Latte

Asia equity markets traded mixed despite last Friday’s positive US close where stocks gained during Inauguration Day for the first time in over 50 years. 5 out of 11 sectors gain in the MSCI Asia Pacific Index with infotech and health care, consumer discretionary underperforming. Nikkei 225 (-1.3%) underperformed as exporter names suffered from a firmer JPY, although Toshiba shares outperformed and rose over 9% after reports Japan’s largest banks could invest in a possible spinoff of the Co.’s chip business. ASX 200 (-0.8%) was also lower with weakness in industrials after Brambles (-15.6%) decreased its profit forecast. Conversely, Hang Seng (+0.1%) was flat while Shanghai Comp. (+0.4%) traded positive as strength in the services sector kept sentiment upbeat after the NBS stated that the services industry grew 7.8% in 2016 and accounted for 51.6% of GDP. 10yr JGBs were higher amid the risk averse tone in Japan and with the BoJ also in the market under its bond-buying programme for JPY 420b1n in 5-10yr bonds, while the curve flattened amid outperformance in the long end.

Top Asian News

• Yuan Trades Near Two-Month High on Stronger Fixing, Dollar Drop
• Asia Currency Strength to Fade as Focus Returns to U.S. Stimulus
• China Slams Western Democracy as Xi Seeks to Build Party Support
• Hedge Fund Renaissance Picks Winner in Hot Japan Tech Stock
• Modi Budget May Put Consumers Before Taxes to Spur India Demand
• Samsung Probe Shows Battery Design, Assembly Behind Note 7 Fires
• LG Display Said to Reach LCD Panel Supply Pact With Samsung

European bourses sold off this morning after markets had the weekend to digest Trump’s inauguration speech. 10 out of 19 Stoxx 600 sectors decline with banks and telcosunderperforming and basic materials, construction outperforming. 72% of Stoxx 600 members decline, 26% gain. With all the major indices down around 0.4%, the financial sector has been hit the hardest after Credit Agricole booked EUR 491 min writedown on their French retail unit and SocGen admitted they were at fault regarding fraudulently concealing the quality of residential mortgage backed securities. Fixed income markets have benefitted from the risk off sentiment observed in markets with morning with Bund prices gapping higher at the open. European fixed income markets picked up as a whole in the aftermath of Trump taking office, 10 YR BTP yield’s eye a sustained break below the 2% level with technical support at 1.95% lower down, this came after comments this weekend from the Italian PM who stated the government’s relationship with the EU is starting to improve.

Top European News

• Theresa May Gets Another Brexit Headache Amid Brussels Upheaval
• Brexit Good for Terra Firma, Bad for Most People, Guy Hands Says
• Trump Era May Force Europe Into Deciding What Role It Wants
• Supreme Court Brexit Ruling Unlikely to End May’s Legal Battles
• May Industrial Strategy Seeks to Pick Winning Areas for U.K.
• UBS Wealth Sees Too Much Political Risk Baked Into Europe Stocks
• JPMorgan May Move 2,500 Jobs to Central Europe on Brexit: Puls
• Starwood Said Planning Sale of London Tower Project on Brexit
• Generali Climbs Amid Reports of Interest by Intesa, Allianz
• Euro-Area Debt Falls to Lowest Since 2012 as Prospects Brighten

In commodities, aluminum for delivery in three months increased 0.9 percent on the London Metal Exchange to the highest since May 2015. Copper, lead, nickel and zinc all rose more than 1 percent. Gold rose 0.2 percent to $1,212.28 an ounce. The metal has increased in 10 of the past 11 sessions. West-Texas Intermediate crude oil was down 1.4 percent at $52.50 a barrel after the amount of drilling rigs in the U.S. increased. The key drivers in the commodity markets at the moment are China’s economic prospects as much as anything else, giving base metals the support we are seeing at present. We have had the added boost of infra structure spending plans in the US but this has somewhat waned in recent weeks, leading to the largely sideways price action seen outside of the specific drivers. Copper saw a brief dip under USD2.60 last week, with Oil prices also falling, though there was little correlation to highlight here, with WTI and Brent seeing some erratic trade over the past week, but the former looking comfortable on a USD50.00 handle for now. Gold has recovered some ground over the weekend over USD softening, but we may see some added support coming in from a risk perspective with equities looking a little vulnerable this morning.

In currencies, the Bloomberg Dollar Spot Index slid 0.6 percent as of 10:51 a.m. in London. It has fallen for four straight weeks, its longest retreat since February. The dollar lost 0.7 percent against the South African rand and 1 percent versus the Mexican peso.  The euro climbed 0.4 percent to $1.0740. The yen rose 1 percent to 113.47 per dollar. Cautious trade in the lead USD pairings, led by the USD/JPY pullback below 114.00. USD longs have favoured this pair specifically as the ‘path of least resistance’ and hence remains ever vulnerable to position trimming/profit taking if Trump rhetoric transfers into fresh nervousness in the market. Notable has been the lack of volatility in the USD/CHF rate which is now below parity, but last week we saw 1.0100 reclaimed by with very little conviction. GBP looks to have weathered an uncomfortable period, heightened by the expectations of PM May’s speech last week, but with the market left in no doubt that the UK will leave the EU in in entirety, we now have a clear view on an albeit rocky road ahead, but with the backdrop of parliamentary vote on the final Brexit deal (when) reached. EUR/GBP is now pressing the recent lows ahead of .8600, but given president Trump’s early request to see PM May, the strong US-UK alliance looks to be assisting some of the gains seen in Cable, though pre 1.2500 will draw in fresh offers.

DB’s Jim Reid concludes the overnight wrap

The photo leading the way in the weekend press was that of new US President Donald Trump. As we start the first business day of his new administration I must admit to having high uncertainty about the year ahead. The range of outcomes seem very wide to me which, for someone that’s supposed to be followed for having strong views, leaves me feeling pretty uncomfortable. Of course I do have a central view which can be broadly summed up by better growth than I thought back in October but higher yields, higher volatility and mildly wider credit spreads over the course of 2017 as the technicals of low yields and  extreme QE wear off. One of the reasons I think vol will be high is that Trump’s victory is a break from the old more predictable policy of the establishment. How big a break and whether it works or not we won’t know for sometime and the market will have plenty of opportunity to second guess the outcomes from both sides of the ledger.

I really have no idea what Donald Trump’s administration is going to want to ‘actually’ do in economic policy terms or be able to do. I think fiscal stimulus is going to be relatively large but I’m guessing (hopefully an educated one) on this front. I am slightly less convinced of this than I was straight after his victory though. His inauguration speech on Friday was high on rhetoric, light on specifics but pretty combative with phrases like “American carnage stops right now” and “America first” grabbing the headlines.

This week will continue to be largely focused on all things President Trump related. White House spokesman Sean Spicer confirmed that Trump will meet with Canadian PM Justin Trudeau “in the coming days” with the renegotiating of NAFTA likely to be front and centre. However there’s likely to be more attention on this Friday’s meeting in Washington between the President and UK PM Theresa May. The PM said in a BBC interview yesterday that “we’ll have an opportunity to talk about our possible future trading relationship” and that “I’m going to be talking about how we can build on that special relationship”. As we already know, Trump has previously said that that the US could strike a trade deal with the UK “very quickly” so it’ll be interesting to see what comes out of the meeting. In addition to this the Brexit talk will come to the forefront tomorrow when we get the Supreme Court verdict on whether Parliament needs to vote prior to the government triggering Article 50. Should there be no change from the High Court ruling then May will be forced to rush a brief bill through both Houses in order to prevent any delay from the self-imposed late March deadline. All eyes on that outcome.

Aside from the obvious Trump-related news this weekend, yesterday in France we had the first round of results in the Socialist primary. They revealed that former education minister Benoit Hamon came out on top with 36.1% of the votes, compared to 31.2% for former PM Manuel Valls. Former Industry Minister Arnaud Montebourg came third with 17.9% and endorsed Hamon. Hamon and Valls will now face a run-off next Sunday to be the Socialist Party candidate. According to  the FT, polls have suggested that whoever winds up as the Socialist candidate would likely come fifth in the first round of the presidential election on April 23rd with less than 10% of the voting. So it’s likely to be a fairly uphill task regardless.

Over to markets now and quickly checking in on how Asia is opening the week. Once again it’s been another fairly mixed start with the Hang Seng (+0.10%), Shanghai Comp (+0.60%) and Kospi (+0.10%) all up but the Nikkei (-1.22%) and ASX (-0.57%) in the red. Markets in Japan are however being weighed down by a near 1% gain for the Yen this morning, while other safe haven assets have continued to make strides include Gold (+0.68%) and Treasuries. There’s been some focus on the morning press in China too with Bloomberg reporting that the People’s Daily has a page dedicated to critiquing Western democracies, albeit without directly referencing Trump.

The moves this morning come after equity markets in the US closed out on a mildly more positive note on Friday following the conclusion of Trump’s speech. The S&P 500 finished +0.34% with sector gains  relatively broadly based while the Dow closed +0.48% and so taking it back into positive territory for the year again. The Stoxx 600 had earlier closed -0.07% in Europe and as a result closed with the first negative return week of the New Year. Away from that rates didn’t appear to be particularly excited by Trump’s comments with 10y Treasury yields ending the day little changed around 2.467% – although in fairness there was a decent fade into the close from the early day highs and that’s continued this morning where they are now at 2.428%. That was the same for the US Dollar after the USD index touched an intraday high of a little over +0.30% before paring all of that move and more into the closing bell to end -0.41%. It also means that the Greenback has now fallen for two weeks in a row. Meanwhile WTI Oil (+2.11%) ended up back above $53/bbl and continues to hover in this $51 to $55 range it’s been in since the end of 2016. It’s up a little bit more this morning too after Saudi’s energy minister confirmed that compliance with the agreed OPEC cut between members has so far been “great” and that “it’s been one of the best agreements we’ve had for some time”.

Elsewhere on Friday we also heard some more comments out of the Fed. San Francisco Fed President, John Williams, said that he doesn’t expect any disruption when the Fed begins to let the balance sheet roll off. Philadelphia Fed President, Patrick Harker, warned that since the US is already at full employment, “any large stimulus to the economy may run the risk of inflation growing faster than we hope” and that “if we had a significant trade war, say with China, the lower 10% of the income distribution would lose 50% of their purchasing power”. Harker also highlighted that the Fed “should consider stopping reinvestment” once the Fed funds rate is above 100bps and that “we are actively discussing and researching the question of what is the appropriate size in the long run”.

Away from that chatter there was little in the way of data out of the US although we did see the NY Fed revise up their Q4 GDP forecast to 2.1% from 1.9% and raise their Q1 2017 GDP forecast to 2.7% from 2.1% with positive news including industrial production and capacity utilization data last week. The Atlanta Fed is at 2.8% for Q4. Meanwhile over in the UK the December retail sales numbers were a bit disappointing with ex-fuel sales in the month down -2.0% mom (vs. -0.4% expected) and so which has had the effect of lowering the YoY rate from +6.4% to +4.9%.

Moving now to this week’s calendar. It’s a pretty quiet start to the week for data today with the only releases of note being the Euro area consumer confidence reading this afternoon and China’s leading economic index. Things pick up on Tuesday however when we’ll get the various flash January PMI’s in Europe. As well as that we’ll also get the latest public sector net borrowing data in the UK. In the US the data due out includes the flash manufacturing PMI, existing home sales and Richmond Fed manufacturing survey. Wednesday kicks off in Japan where the December trade numbers will be due. During the European session we’ll get various confidence indicators in France along with the IFO survey in Germany and CBI trends orders data in the UK. The only data due in the US on Wednesday is the FHFA house price index. In Asia on Thursday we’ll get some data out of China with the December industrial profits numbers. During the European session we’ll get consumer confidence in Germany and the advanced Q4 GDP reading in the UK. The US calendar finally picks up on Thursday with the advance goods trade balance, wholesale inventories, initial jobless claims, flash services and composite PMI’s, new home sales, leading index and Kansas Fed manufacturing survey all due. We close the week out in Asia on Friday with CPI in Japan. During the European session we’ll get M3 money supply for the Euro area and consumer confidence in France. Over in the US it’s all eyes on the advance Q4 GDP print in the US. We’ll also get a first look at durable and capital goods orders during December as well as the final University of Michigan consumer sentiment reading.

Away from the data there’s no Fedspeak this week with the Fed entering the blackout period. However we will hear from the ECB’s Praet, Weidmann and Lautenschlaeger at various points this week. BoE Governor Carney will also speak on Wednesday. Meanwhile earnings season will also start to ramp up with 107 S&P 500 companies set to report, accounting for about 29% of the index market cap. The notable reporters include Yahoo and McDonald’s today, Verizon and Johnson & Johnson on Tuesday, AT&T, eBay and Boeing on Wednesday, Caterpillar, Ford, Intel, Alphabet and Microsoft on Thursday followed by Chevron on Friday. The other key event for markets will of course be the UK Supreme Court decision tomorrow, before PM May meets with President Trump on Friday.

While OPEC members were infighting over crude production and export quotas, posturing with temporary production cuts (just so the Saudis could get a six month reprieve during which it clears out a massive internal crude glut), Russia was busy capturing market share, and according to overnight Chinese data, Russia overtook Saudi Arabia as China’s top oil supplier last year for the first time ever boosted by robust demand from independent Chinese “teapot” refineries.

Russia boosted oil exports to China by 24% from 2015 to 52.5 million metric tons, or 1.05 million barrels per day, according to data released Monday by the General Administration of Customs, cited by Bloomberg. In a blow to Ridyah’s ambitions, the Middle Eastern kingdom slipped to second place, shipping 51 million tons, or 1.02 million barrels per day, little changed from a year earlier.

For December, Russia also held the top spot with supplies up 4.8 percent from the same month a year earlier at 1.19 million bpd. Meanwhile Saudi sales dropped nearly 20 percent from a year earlier to 841,820 bpd, data from the Chinese General Administration of Customs showed.

Total crude oil imports in December hit a record as refiners stepped up purchases ahead of a deal by oil-producing countries to reduce supply and bolster prices, Reuters reports. For the whole of 2016, imports gained nearly 910,000 bpd over 2015, the strongest annual growth on record and mostly driven by teapot buying. While Saudi Arabia counts China’s state oil firms as backbone clients through long-term supply contracts, China’s independent refineries, called “teapots” due to their smaller processing capacity, saw Russia as a more flexible, and perhaps cheaper, supplier.

Over the past year in which China’s growing demand has proven to be the holy grail for oil exporters, “Russia has been tussling with Saudi Arabia for dominance in the Asian nation amid efforts by oil producers to defend market share during a worldwide glut.”

Chinese demand, much of which has been to fill its strategic petroleum resreve, has been seen as a key to a sustainable recovery in prices, while benchmark rates are climbing from the worst crash in a generation amid output cuts by major producing nations. China last year bought the commodity at the fastest pace since 2010 amid growing appetite from private refiners, known as teapots, according to Bloomberg.

The proximity of Kozmino port, from where Russia ships Siberian crude, to Qingdao, where teapots typically receive their supplies, has helped boost cargoes after the processors were allowed to use overseas oil in 2015. “With teapots’ import growth set to continue in 2017 and the expected expansion of Sino-Russia pipeline by year-end, Russia is likely to aim for the top spot again this year,” said Sun.

“Saudis have always dominated the top supplier spot to China,” said Amy Sun, an analyst with Shanghai-based commodities researcher ICIS-China. “High imports from Russia mostly can be attributed to growing demand from teapots and strategic reserves purchase.” For the teapot plants, authorized to import crude oil for the first time in late 2015, shipments from Russia’s eastern ports are easier to process, coming in smaller cargo sizes at a closer proximity.

Looking at 2017, Russia may be able to maintain the top spot as it expands exports of its East Siberian-Pacific Ocean (ESPO) pipeline blend crude. Saudi Arabia, meanwhile, is set to shoulder the lion’s share of supply cuts agreed to last year by the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers. Should the Saudis lose even more market share to Russia, it is virtually certain that the kingdom will promptly nullify the Vienna deal, as it scrambles to regain China’s top supplier status in what will soon be a matter of national pride.

“OPEC cuts means Gulf producers take a hit in terms of market share, even though most of their cuts are to Europe and US …Russia has an ESPO expansion coming up as well as supplies via Kazakhstan earmarked for China,” said Michal Meidan of consultancy Energy Aspects.

Angola was the third-largest supplier in 2016, exporting 43.7 million tons, or about 875,000 barrels per day, 13 percent higher from last year, today’s customs data showed. China’s total crude imports climbed 13.6 percent last year to 381 million tons, according to customs data released on Jan. 13. China also boosted imports from South American producers last year, with growth of 37.6 percent from Brazil and 26 percent from Venezuela, the data showed.

Finally, imports from Iran expanded nearly 18 percent last year to a record 624,260 bpd, as Chinese state oil firms started to lift barrels from their investments in Iranian oilfields in addition to term supply agreements.