Originally published by AxiTrader
Quick Recap
The Election has become more interesting and the chances of a Trump victory must have increased. That’s a risk for markets that is not priced. Expect that contemplation, and a huge week of data and events, to set a mildly negative tone for sentiment across the week.
It should be interesting.
What You Need To Know
International
- The re-emergence of the investigation into Hillary Clinton’s email server is a strange and unexpected twist which increases political risk as we head into the last week and a bit of the election campaign. From here on the East Coast of Australia it seems an almost trivial concern when compared to Wikilieaks, Edward Snowden, Chinese hacking and other revelations about US data security in recent years. But from a behavioural point of view the revelations play to Trumps narrative and as such traders will be thinking, or at least wondering, if the election is now likely to be closer than they previously thought.
- That saw stocks gyrate and finish down, the US dollar lose its lustre a little and bond markets rally Friday even though US Q3 GDP was a solid beat with a print of 2.9% annualised.
- How this all plays out is just another potential point of pain for traders in what is a massive week of data. We have meetings, and decisions from the RBA, BoJ, BoE and fed among others. We have the usual first week of the month avalanche of data releases and of course we also end the week on Friday with the US October non-farm payrolls. It’s a huge week.
- But it’s worth noting that an AI robot that correctly predicted the last 3 elections says Trump will win the November 8 race.
- Looking back at the data Friday and the release of the better than expected 2.9% growth rate for the quarter in many ways was lost in the tumult. Naturally the deconstructers were out saying the big lift in trade which helped power growth was just soy bean so it can be discounted. Folks always like to do that but the reality is the US economy is doing okay and this data supports a Fed rate hike. Certainly consumer spending dipped back to 2.1% but that’s still pretty good for the moment. Interestingly – in a sign investment is picking up (and yes I know I’m deconstructing) non-residential structures grew 5.4% for the quarter.
- Assuming the market doesn’t fall into a funk as a result of a Trump presidency, should that occur of course.
- Something extremely interesting might be happening in global banking. We’ve been hearing for month’s now that European authorities aren’t so keen on the new Basel 4 regulations and the increased requirements for even more capital at their embattled banks. It’s backsliding on global push to a more resilient system. But it’s also pragmatic which is a good sign for the almost always doctrinaire Europeans. Anyway, on Friday BNP said that it expects European regulators are going to tell it the bank will need to hold about 2% less, not a typo, capital in the coming year. WOW is all I can say. But BNP is likely to be the last if this is the case. I can’t wait to hear APRA’s response – although radio silence is more likely.
Australia
- What a weird market the ASX is. It fell completely out of bed in the last three days trade to end the week on the back foot and under a lot of pressure. Friday’s loss of -0.22% built on the previous two days 2.7% falls and even though the close at 5283 was above the last line of Fibonacci defence and 22 points off the low for the day traders are likely to be nervous about buying without a US turnaround given election uncertainty and other drivers this week.
- From a technical point of view the 5185/90 region looks like a tractor beam now in physical S&P/ASX 200 terms while 5150 is the level on the SPI.
- The RBA decision tomorrow is widely judged by traders as having little chance of a rate cut. But around a quarter of economists polled by Bloomberg think it could happen. That disconnect is interesting insofar as the economist clearly see the recent inflation numbers as opening the door to the cut even though the headline number was higher than expected. My sense is that the RBA is in no rush to ease with the cash rate already at a record low of 1.5% and growth above 3%.
- But tomorrow’s statement by governor Lowe is going to be an interesting one because of the still low inflation, slowdown in the jobs market, and moves in housing. Even with no change to monetary policy the statement could be a market mover.
Forex
- I talked about a top in the US dollar last week and it looks like we might have got it now after Friday’s price action which saw the Euro surge back toward 1.10, USD/JPY is under 105, and the Swiss is back under 99. You can see the top and reversal in US Dollar Index terms nicely in the chart here. A break of 98.14 would indicate a deeper retracement.
- Looking specifically at the Euro and you can see that the US dollar weakness saw a big leap on Friday and it has opened this morning holding that gains at 1.0990 this morning. Last week I was saying and writing that a turn was imminent and a bootom in and this move has bumped into my fast moving average which is where I cut half my initial position. That said it looks like it is going to run a little higher based on the charts.
- Sterling is going nowhere still, but USD/JPY looks like it may have formed an interim top. One day is too early to tell just yet but I’ll keep an eye on it.
- Looking at the AUD/USD Friday saw a test of the trendline which stretches back to the lows of the year. That tells us traders are still respecting levels. It’s a big week for the Aussie with plenty of data. We know supply is heavy above 77 cents and we now also know traders are still eyeing trendline support. If the US dollar has topped for the moment the Aussie should remain well supported. Here’s the chart:
Commodities
- Crude Oil continues to slide and the news over the weekend that OPEC is still haggling with Iraq and Iran – in particular – and hasn’t yet set the groundwork for a deal will wrangle the bulls. The failure of the weekend meeting to strike a deal lead the Iraqi oil minister to release granular details of his country production on Sunday in what is clearly posturing to get OPEC to recognise Iraq is pumping as much oil as it says it is not the lower amounts OPEC estimates.
- Two things are important here. First it’s clear OPEC is still wrangling and a deal is yet to be agreed for ratification at the end of the month meeting. Second, at least to me, the fact that Iraq released granular details tells me the deal is still being discussed in earnest. Otherwise why release data and why not just retreat to a belligerent corner.
- Naturally OPEC needs to agree a deal if non-OPEC oil producing nations are to entertain joining a deal. So for the moment my expectations we’ll see a move to $47.50 in WTI terms remain intact.
- Gold was always going to catch a lift on the back of the increased uncertainty. It’s at $1275 this morning. On Friday it hit just below the $1285 target I was writing about last week. My sense is a run back toward that level and $1295 is on the cards.
- Copper roared to $2.1875 on Friday.
Today's key data and events (all times AEDT)
- Australia - TD Securities Inflation (YoY) (Oct), TD Securities Inflation (MoM) (Oct) (11am); Private Sector Credit (YoY) (Aug), Private Sector Credit (MoM) (Aug) (12.30pm)
- New Zealand - Building Permits s.a. (MoM) (Sep) (8.45am); ANZ Activity Outlook (Oct) (11am); M3 Money Supply (YoY) (Sep) (1pm)
- China - Nil
- Japan - Industrial Production (MoM) (Sep), Industrial Production (YoY) (Sep), Retail Trade (YoY) (Sep), Retail Trade s.a (MoM) (Sep), Large Retailer's Sales (Sep) (10.50am); Nikkei Manufacturing PMI (Oct) (11.30am); Construction Orders (YoY) (Sep), Housing Starts (YoY) (Sep), Annualized Housing Starts (Sep) (4pm)
- Germany - Retail Sales (YoY) (Sep), Retail Sales (MoM) (Sep) (6pm)
- EU - Gross Domestic Product s.a. (YoY) (Q3), Gross Domestic Product s.a. (QoQ) (Q3), Consumer Price Index (YoY) (Oct), Consumer Price Index - Core (YoY) (Oct) (9pm)
- UK - Net Lending to Individuals (MoM) (Sep), Consumer Credit (Sep), Mortgage Approvals (Sep), M4 Money Supply (MoM) (Sep), M4 Money Supply (YoY) (Sep) (8.30pm)
- Canada - Industrial Product Price (MoM) (Sep), Raw Material Price Index (Sep) (11.30pm)
- US - Personal Consumption Expenditures - Price Index (MoM) (Sep), Personal Income (MoM) (Sep), Personal Consumption Expenditures - Price Index (YoY) (Sep), Core Personal Consumption Expenditure - Price Index (MoM) (Sep), Core Personal Consumption Expenditure - Price Index (YoY) (Sep), Personal Spending (Sep) (11.30pm); Chicago Purchasing Managers' Index (Oct) (12.45am); Dallas Fed Manufacturing Business Index (Oct) (1.30am); 3-Month Bill Auction, 6-Month Bill Auction (2.30am); Loan Officer Survey (n/a)
Have a great day's trading