Originally published by Rivkin Securities
Volatility in the US stock market remained low last night as the major indices climbed higher throughout the session. The S&P 500 closed up 0.75% while the Dow Jones Industrial Average finished up just 0.29%. This continues the multi day rally that started on the day (US session) Trump was announced as president-elect. The local market continues to significantly underperform the US market with the S&P/ASX 200 falling 0.4% yesterday after also declining on Monday. The reasons for this are unclear other than perhaps more scepticism over Trump compared to US investors. Strong US retail sales figures released last night may have contributed to the stock market gains with both the headline and core figures increasing by 0.8%. This beat expectations of a 0.6% and 0.5% increase respectively. Furthermore, the prior month figures were revised up.
After three days of sharp increases, yields on US bonds stabilised overnight although the 10-year yield is now up 43 basis points over the last month. For Australian bonds, the 10-year yield is just seven basis points off its recent high at 2.69%. Several non-bank lenders have already increased mortgage rates by up to 45 basis points as the costs of international funding have risen. After briefly dipping around the time of the election, the market implied probability for a December rate hike in the US is now around 90%. Part of the reason for such a high number is that markets expect Trump to engage in substantial fiscal stimulus that will shift the burden of stimulating the economy from the Federal Reserve and therefore allow it to raise rates.
On the commodity front, the big move overnight came from oil which jumped $2.38 (5.49%) to $45.60 for Crude Oil and a similar amount from Brent Oil. The move seems to have come on the back of headlines out of OPEC stating that they will hold informal talks with Russia on Nov 17-18 and said they also plan to talk with Iran, Venezuela and Ecuador regarding a potential production cut. Although the oil price jumped on these headlines, the market typically views these talks with a healthy degree of scepticism as a deal is very much a case of easier said than done.
The gold price ended the session more or less unchanged and still trades near its recent lows. The fear of higher interest rates has sent gold to an almost six-month low. Although it is often seen as a hedge against inflation, the prospect of higher inflation in the US as a result of the fiscal stimulus that Trump is expected to deliver doesn’t seem to driving the gold price at present.
Data releases:
· Australian Wage Price Index 11:30am AEDT
· FOMC Member Bullard Speaks 8:00pm AEDT
· Great Britain Unemployment Rate 8:30pm AEDT