Originally published by AxiTrader
Quick Recap
Traders have just experienced one of the wildest, and most volatile 24 hours on markets in years. That emotions drive traders decisions is becoming more understood but even with that backdrop the dramatic turnaround from the trade during our session in Asia yesterday. Whether it was S&P futures down 107 at one point to be trading in the black now or USD/JPY making a low around 101.20 but is now back trading above 105, and especially the move in US 10’s from 1.73% to 2% this morning.
Of course the Mexican peso move was incredible but it is these bigger markets where most of the money in global markets resides.
So the turnaround is one for the books. But the question for traders is can they go back to the status quo that the rally in the US dollar and stocks suggests? Will the Fed now still move in December because stocks bounced back. And what about the bond market sell off.
Lots to churn through in the days ahead.
Anyway, here’s what I picked up
What You Need To Know
International
- Carl Icahn told Bloomberg at 5am this morning Sydney time that he doesn’t usually trade in the middle of the night but the selling was overdone and after he left Trump’s party he bought some futures. He also said Trump won’t be terrible for the US economy as congress moves away from gridlock of Obama (then my internet dropped out). He also said he still has hedges on however for the troubles that ail the economy, and he said that overnight a Trump victory hasn’t fixed everything. He also said it was “absurd the market, the S&P 500 was down 100 on Trump getting elected” when he sees the impact as positive.
- I’m with Icahn. In the same way that I’ve been saying Brexit won’t kill the UK economy I can’t see how a Trump presidency does that to the US. Perhaps that is because I believed he was a strong chance to win given his march was simply an extension of the global social mood that has changed politics across the planet so much in the past year or so. It’s a backlash against elites, it’s a backlash against what many feel is a rigged system. But its also an energised backlash and if Trump can somehow harness that we may have found a way out of the malaise that central bank policies have put the global economy in for the past few years.
- On the topic of what drove Trump – I wrote about this at business insider yesterday morning. It got lost in the maelstrom of shock and market moves. It’s a poll of 10,000 people who cast their votes and what was driving them. The poll showed that people are angry at a system they see as stacked against them. Seventy-five per cent of respondents said the next president needs to be strong enough to take on the rich and powerful while 72% said the economy is rigged. No surprise really in the election result when you read that is there? Or you can read Jamie Dimon’s memo to his staff saying global politics must change.
- SO NOW IT’S BACK TO THE BUSINESS OF TRADING AND INVESTING – the last 24 hours have been wild. Believe it or not I’m pretty sure the S&P range is only the biggest in a couple of years but as I write (5.45am Sydney) the S&P is up 14 points to 2153 that’s a long way from the futures low of 2028 – 6.1% off the lows.
- Key to this move is not just that Donald Trumps acceptance speech was very conciliatory and presidential. But that traders are betting on sectors of the economy they see winning under a Trump presidency. But it is also worth noting that the punditry – including the very bullish Tom Lee from Fundstrat have dragged their year end forecasts lower for the S&P 500. Lee for example dropped his target to 2225 from his previously optimistic 2325. But others like Goldman Sachs (NYSE:GS) David Kostin still have 2100 pencilled in as the end of year price.
- But we can’t talk about overnight markets without talking about bonds. US 10 year bonds are now at 2.05% up 28 points from the low I saw in our day at 1.73% yesterday. That means that bonds have now broken their “taper tantrum” downtrend. The reason bonds are higher is because of a combination of fiscal stimulus driving growth but also the US deficit.
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Elsewhere
- Reuters reports the Fed is still going to hike in December according to a Reuters poll – I agree
- The EU cut its own and UK growth forecasts for 2017
- EU bank watchdog said Basel IV banking rules need to change
- The Atlanta Fed GDPNow guesstimate of growth stayed at 3.1%
Australia
- Yesterday means nothing but a painful memory for Australian traders today now that the US markets have recovered so sharply. SPI 200 futures are up 161 points or 3.1% at 5313.
- Whether our market can actually gain that many points in physical trade today is an open question given its inability to be positive recently. Also yesterday would have hurt a lot of smaller and retail traders who clearly rushed for the exits. They won’t be too keen to junp straight back in.
- In SPI terms though we are right on the underside of the uptrend the market broke out of recently. A break back inside that channel would see the market roar.
Forex
- What a wild day on the world’s biggest market yesterday. SO much weakness and now a recovery across so many pairs would have hurt a lot of traders. It’s long tails everywhere. Rather than write a lot of words here’s a tweet from this morning a little before 5am that sums things up.
- The rally in USD/JPY, and the selloff in Euro, back at 1.0931 this morning, is remarkable. But the recovery in the US dollar fits with everything I have written above. At least for now. If Trump can stay with the message and tone of his acceptance speech the US dollar, and US markets, should be okay – then we wait for him to take office and actually implement his plans.
- But one thing to note is that the MXN is still 7.5% weaker than this time yesterday. That suggests, as does the performance of sectors in US stocks, that there is still a level of specificity to these moves. Trump is being viewed as someone who is not a danger to the US or global economy – not as much as people feared in Asis and early Europe anyway – but he is being perceived as someone who is likely to hurt the Mexican economy.
- For the Aussie it was an interesting day and a very positive one – the low of 0.7576 was very solid given the carnage everywhere else. The outlook for the AUDUSD has changed and brightened. I’ll talk more about that in my AUDUSD piece later this morning.
Commodities
- Gold had an amazing ride along with stocks and currencies yesterday – the $1337 high was right in the zone we talked about a week ago and right on a resitance line – NOTE TO THE LESS EXPERIENCED when traders have no idea they look at charts. But gold is now back at $1276 with a slightly lower bias for now after such an ugly reversal.
- Crude Oil is higher but you’d have to guess that OPEC’s job has become a little harder now under a Trump presidency. ON the one hand I think it could harden resolve within the group to get this deal done. But on the other OPEC will not want to poke the new bear to much I wouldn’t think. This is going to be a very interesting period for Oil and US production.
- Copper – goodness $2.46…8 cents a pound to first resistance.
Today's key data and events (all times AEDT)
- Australia - Consumer Inflation Expectation (Nov) (11am); Investment Lending for Homes (Sep), Home Loans (Sep) (11.30am)
- New Zealand - RBNZ Interest Rate Decision, Monetary Policy Statement (7am); RBNZ Press Conference (8.05am)
- China - Nil
- Japan - Foreign investment in Japan stocks (Nov 4), Foreign bond investment (Nov 4) (10.50am)
- Germany - Nil
- EU - Nil
- UK - Nil
- Canada - New Housing Price Index (MoM) (Sep), New Housing Price Index (YoY) (Sep) (12.30am)
- US - Initial Jobless Claims (Nov 4), Continuing Jobless Claims (Oct 28) (12.30am); EIA Natural Gas Storage change (Nov 4) 92.30am); 30-Year Bond Auction (5am); Monthly Budget Statement (Oct) (6am)
Have a great day's trading