Originally published by AxiTrader
Quick Recap
Investors are still trying to figure out what the heck a Trump presidency means. We’ve had disparate performances so far on the big 3 stocks indexes in the US, Europe snatched defeat from the jaws of victory ending down, and my friends the bond markets have lifted US 10’s back to 2.14%.
The Aussie dollar has had a wild ride as the European euphoria took it back above 77 cents before it was hammered back to 0.7605 as I write. Oil and gold are off as well.
Here’s the wrap
International
- Recovery in stocks is not stability in markets. That was the theme of my morning video yesterday and it continues to be my theme for the moment. There are a couple of reasons for this. One is volatility clusters – as overnight moves in asset markets show and the second is that we are only into the second day of the Trump era and exactly what policy positions he actually pushes is yet to be clear.
- So at the close we have the Dow Jones Industrial Average up 1.2%, the Nasdaq 100 down 0.75% and the S&P 500 up just 0.25%. The Dow ended at a new all time high because traders are betting its components will - on balance - be the big winner under Donald trump's presidency.
- I’m bullish on Trump economically though - from now on called TRUMPONOMICS. I think the infrastructure spending and tax cuts he has planned can break the shackles of the negative feedback loop in the US economic growth cycle which have kept it hamstrung.
- I’m also encouraged that his economic advisor David Malpass said overnight we should all stop talking about the Fed. "The Fed is independent…The issue, though, is their performance has not been good. We've had a really slow-growth economy. The question is will they look inside and see their part of that problem" he said.
- Interestingly though that’s a key challenge for stock ebullience because as St Louis Fed president James Bullard said overnight the Fed is still on track to tighten. Interestingly he was also upbeat about a break in the Washington gridlock given Trumps sweep of the Congress. That has to be good for growth – But it’s also likely to be reflationary which means higher Fed funds and rates. A challenge to stocks.
- Also a challenge for markets according to Bridgewater founder Ray Dalio is Trump uncertainty (couldn’t agree more). He said in a letter after the election "There is much more that we don’t know than we do know,” Dalio wrote in a client letter viewed by Business Insider. “Our guess is that the markets will increasingly focus on what he is likely to do and less on how sensible he sounds.”
- Naturally the issue for president-elect Trump is how he walks the tight rope between what his platform promises are and what he can deliver.
Elsewhere
- Former Soros offsider and hedge fund manager Stan Druckenmiller is “very optimistic” about the economy.
- Asian currencies remain under pressure as the vast majority of analysts – and investors it seems – are worried about the impact of Trumps protectionist policies and isolationism has on the region.
- Bank of England chief economist Andrew Haldane says the economy is a kaleidoscope of factors not a rocking horse that settles back into equilibrium after a nudge. It’s a James Bullard kind of approach and one that means central bankers need to be more adaptive. I get a sense the next few years might give Haldane and Bullard and opportunity to exercise their intellectual and policy flexibility.
- ECB’s Constacio said the economic recovery is continuing but low inflation is entrenched at the moment.
Australia
- The S&P/ASX 200 was up 3.34%, 172 points, and closed on it’s highs yesterday in a cracking days trade. Or at least a very strong close.
- With a couple of hours to go I tweeted that both the ASX physical, and the SPI, were struggling to get up and through the resistance that the old uptrend line we talked about yesterday offered. But by the close, and then overnight, both markets did move into the zone.
- This morning though, the SPI 200 is back under the trendline as you can see in the chart below of the SPI.
- Looking at the market today and the SPI futures traders probably have it right with the December contract flatish at the momentdown 4 points.
- Sectorally, Banks did well in the US but then the transition team for Trump has said they’ll roll back Dodd-Frank (how is this consistent with trumps drain the swamp call when bank culture has shown itself so flawed I hear you shout). But that shouldn’t have any real resonance with our banks. But the selling in technology stocks in the US is a bit weird…check out Amazon (NASDAQ:AMZN). Not sure I understand that particularly.
- Anyway, it’s the end of the week – it’s been awfully volatile so it is likely to be awfully thin today and that means the day traders will have it.
Forex
- On balance the US dollar is higher again after bouncing so spectacularly off the uptrend line on Wednesday.
- Euro and yen are the big losers while sterling is really getting a boost – especially as EUR/GBP stops seem to have gone off big time. Euro is at 1.0892, USD/JPY is at 106.72 – just 1 big figure from my 107.85/108.10 target and Sterling is at 1.2565 as it – like Copper – finds buyers who have been emboldened by the fact that it just won’t go down. 1.2629 is the next target and line of resistance for sterling.
- The Australian dollar – which had performed reasonably the day before – had a wild night as thin conditions and a battle between the bulls and the bears drove it all the way to 7740 before it collapsed to 0.7569 and it’s now back at 0.7605. The battle rages.
Commodities
- Oil is down a little as the focus turns to the trouble that Trump could bring to the industry and, more tellingly, just how OPEC is going to stitch this deal together. Crude Oil is off 1% at $44.82 while Brent Oil is at $45.96.
- I still think OPEC needs this deal badly enough to cobble something together. BUT the geopolitics of such a move just got a heck of a lot harder – for OPEC, and the Russians.
- Gold fell another $12 bucks but I like it the more it falls. Just waiting for a buy signal. Just waiting to see if $1260 holds or not.
- Copper hit the $2.54 target during Asian trade yesterday. That’s a ridiculous rally in such a short period of time and I’m looking for a consolidation of time and price.
Today's key data and events (all times AEDT)
- Australia - Nil
- New Zealand - Food Price Index (MoM) (Oct) (8.45am); Business NZ PMI (Oct) (10am)
- China - FDI - Foreign Direct Investment (YTD) (YoY) (Oct), M2 Money Supply (YoY) (Oct), New Loans (Oct) (n/a)
- Japan - Domestic Corporate Goods Price Index (MoM) (Oct), Domestic Corporate Goods Price Index (YoY) (Oct) (10.50am); Tertiary Industry Index (MoM) (Sep) (3.30pm)
- Germany - Wholesale Price Index (MoM) (Oct), Wholesale Price Index (YoY) (Oct), Consumer Price Index (YoY) (Oct), Harmonised Index of Consumer Prices (MoM) (Oct), Harmonised Index of Consumer Prices (YoY) (Oct), Consumer Price Index (MoM) (Oct) (6pm)
- EU - Nil
- UK - CB Leading Economic Index (Oct) (1.30am)
- Canada - Remembrance Day (24h); BoC Governor Poloz Speech (11.35am)
- US - Veterans Day (24h); Reuters/Michigan Consumer Sentiment Index (Nov) (2am); Baker Hughes US Oil Rig Count (5am)
Have a great day's trading