Originally published by Rivkin Securities
The global risk-off theme continued on Monday as investors continue to react to Donald Trump’s first actions as US president. Following from his “America First” speech at his inauguration on Friday he signed an executive order withdrawing the US from the Trans-Pacific Partnership agreement, leaving it dead in the water. That should come as no surprise given it was a key policy promise and will also withdraw the US from NAFTA as well. The market has been buoyed since November 8th on expectations of fiscal stimulus, deregulation and tax cuts and perhaps the first actions being related to a protectionist stance is weighing on this optimism. In reality trade related actions are the easiest for Trump to take action on, with progress towards other policies to come in the coming weeks.
In currencies the US dollar fell against major peers with the U.S. dollar index down -0.56%, the euro gained +0.42%, as did the AUD +0.23%, JPY +1.29%, and CHF +0.27%. Precious metals also rose with spot gold at two-month highs, up +0.47% at US$1,216.90 while in Australian dollar terms it gained +0.326% to be at $1,615.91 shown on the first chart below. The GBP also rose +1.03% ahead of a key Supreme Court decision on Tuesday around 8:30pm AEDT over whether the UK parliament needs to vote prior to triggering article 50.
Yields on safe haven government bonds declined, the US two-year treasuries dropped -5 basis points to 1.1475% as did the ten-year down -6.4 basis points at +2.4026%. German Bund yields, the benchmark for European debt, also declined, the two-year yield down -1.4 basis points to -0.682% and the ten-year -5.8 basis points lower at +0.366%. In Japan the Bank of Japan’s yield curve control at this stage continues to remain effective, with yields little changed remaining in a tight trading range, at -0.234% & +0.055% respectively. Locally Australian yields were slightly lower, the two-year falling -1.5 basis points to +1.881% as did the ten-year, down -2 basis points at +2.768%.
Global equity markets also declined, in Japan both the Nikkei and Topix closed -1.29% and -1.23% lower weighed on by the strengthening currency. European markets were weaker across the board, the Euro Stoxx 600 trading -0.43% weaker, as did the DAX -0.73%, FTSE100 -0.66% and CAC40 -0.60%. In the US the S&P 500 declined -0.27% with 321/505 stocks trading lower, while the technology focused Nasdaq 100 was flat, up just +0.05% for the session.
The second chart below highlights the S&P500 and the VIX index, which effectively is a measure of fear in the market. Currently with a reading of 11.77 this represent a significant degree of complacency in the market. While this does not mean a large pullback is imminent, it does highlight that equities are vulnerable to a corrective move in the near-term.
Locally the S&P/ASX 200 finished -0.77% lower with just under three quarters of constituents finishing lower. However we look set to recover some of these losses this morning with ASX SPI200 futures up +18 points in overnight trading.
Data releases:
· Australian ANZ Roy Morgan Consumer Confidence (Jan 22) 9:30am AEDT
· Nikkei Japanese Flash Manufacturing PMI (MoM Jan) 11:30am AEDT
· Eurozone Markit Flash Manufacturing, Services & Composite PMI (MoM Jan) 7:30pm AEDT
· U.K. Supreme Court Brexit Ruling 8:30pm AEDT
· U.S. Flash Manufacturing PMI (MoM Jan) 1:45am AEDT
· U.S. Existing Home Sales (MoM Dec) 2:00am AEDT
Source: Rivkin, RivkinTrader
Chart 1 - XAUUSD (Blue) and XAUAUD (Purple)
Chart 2 - S&P500 (Blue) and CBOE Volatility Index (Purple)
