10th year lucky for RBS? & gold loves Trump

10th year lucky for RBS?

A risk-off tone took hold at the end of the week with investors fleeing stocks and seeking the safety of gold. A stunning 10-day run of record closes in the Dow Jones was probably a cue in itself for global markets to give a little back. The last time the Dow had such a winning streak was 1987, the year that saw Black Monday, the biggest one-day market crash in history.

Political risk was notably absent for most of the week, with German stocks arguably benefitting as an investment haven. It all came home to roost on Friday when Emmanuel Macron, the best hope for mainstream politics in France revealed his economic plan. Tax cuts and lower government spending may be sensible economically but probably won’t sit very well with your average socially-minded French voter.

An impressively bad ninth annual loss for RBS was the biggest drag on the FTSE 100 which sunk to a two-week low, before rebounding. Pearson and IAG were top risers after reporting well-received earnings. The UK benchmark had come within a hairs breath of record territory last week and seems to have, at least temporarily given up the ghost.

Gold loves Trump

Despite the political risk, taking a bearish view on stocks is risky when the uptrend has been so persistent. A market that has been reacting better to rising political risk has been gold. The demand for gold is not a new phenomenon this year. The yellow metal has finished higher nine out of the past ten weeks. On Friday it cracked $1250 per oz for the first time since it tanked after the US election.

The rise in stocks this year tells you investors are feeling confident about Trump’s America but the rise in gold tells you they are well aware it could all go horribly wrong. We maintain our positive view on gold and see a good chance of a re-test of $1300 per oz in the coming weeks.

Border tax and Obamacare priority disappoints

The Dow Jones and S&P 500 opened lower on Friday as uncertainty set in again over President Trump’s tax plans. The Donald should give more details on his tax reform plan in the next couple of weeks according to his press secretary Sean Spicer. Trump Prioritising the repeal of Obamacare over tax reform and the emphasis of protectionist measures like a border tax are not game changers but were enough to disappoint over-extended bulls.

Probably our biggest concern is that we are witnessing a ‘buy the rumour’ before a ‘sell the fact’ on Trump’s tax and spending plans. With congressional support it seems likely he can deliver something worthwhile, but just perhaps not enough to satisfy markets that have rallied so far since November.