Originally published by AxiTrader
Quick Recap
Relief is second only to fear when it comes to generating market moves.
And traders were relieved on Monday in Asia that FBI director James Comey said he’d reverted to his July finding that Hillary Clinton has no case to answer. That relief continued in European and American trading overnight, such that stocks are up around 2% in the US, a little less in Europe, and more than 3% in Mexico.
The US Dollar is stronger against the Yen, Euro and Pound – but not a lot more than where forex traders initially drove prices to almost 24 hours ago. Gold is down at $1280 and US 10 year Treasuries are up at 1.83% as the odds of a Fed hike – or at least the market pricing – increased again in the wake of the news and risk on sentiment.
And that risk on sentiment has driven the Aussie dollar higher – its above 77 cents. Just, but still there.
What You Need To Know
International
- The flow of polls overnight have Hillary Clinton winning the election in a clearer manner than previous polls after the amazing intervention from FBI Director Comey. It’s not for me to editorialise on his motives or drivers but from a market perspective he certainly introduced a lot of volatility into trading. But the fact that the market (as measured by the S&P 500 and US dollar) sank on the initial news that Comey was reopening the Clinton emails question but leapt on a relief rally yesterday tells you the market is clearly voting for Clinton.
- That means there is some risk – not inconsiderable – if Trump Triumphs. This price action, what we have experienced in the first day of this week, is almost an exact replica of the pre-Brexit trade in markets. Recall sterling (GBP/USD) traded to 1.50 as traders thought the stay vote would win. And then subsequently collapsed. Now the US election is not Brexit. And the electoral college structure makes it difficult for Donald Trump to find a path to the White House – but he’s probably still a non-trivial 30%+ chance of victory. No wonder Bloomberg reports funds like Janus and Old Mutual are keeping their hedges on.
- So we are likely to have a lively days trade in Asia tomorrow as the results start to filter out regardless of who wins.
Elsewhere
- Former Fed Chairman Alan Greenspan thinks bonds are on their way back to 5% (NOT A TYPO) as inflation takes hold again in the US. “If the early stages of inflation, which are now developing, would take hold, you could get -- fairly soon -- a fairly major shift away from these extraordinarily low yields on 10-year notes, for example,” Greenspan said in an interview on Bloomberg Television on Monday. “I think up in the area of 3 to 4, or 5 percent, eventually. That’s what it’s been historically.” – That would really and seriously crimp stock market valuations.
- China sacked its Finance Minister yesterday replacing Lou Jiwei with Xiao Jie who has worked at the ministry for 20 years and used to be an adviser to Premier Li Keqiang. President Xi might now be core but this reinforces Li remains just as important at the top of Chinese government.
- The Bank of Italy said on Monday that the ECB is considering extending – not tapering – its QE program past the March 2017 end date. But Reuters reports the ECB’s Lautenschlaeger is sceptical of further easing.
- On Brexit a couple of interesting things from overnight. UK house prices rose in October according to the Halifax index and a Reuters survey showed that Sterling is at the ideal deal level according to respondents to help the economy adjust to current uncertainties about the Brexit process. I know I say it all the time but an outwardly facing economy can benefit from a big fall in its exchange rate – again I offer Australia as an example
Australia
- The S&P/ASX 200 rallied 70 points, 1.35% yesterday in what was a broad based move higher. Except for the gold miners and a few others who reacted to golds fall to around $1292 in our time zone yesterday. Naturally the gold miners might find it tough again today given the yellow metal is lower again but overall the market is expected to open higher if futures traders are any guide.
- The December SPI 200 contract is up another 13 points overnight and on the charts it looks like the markets wants to retest the bottom of the uptrend it broke out of recently. 5301 is the target – but as readers know I’m flat until after the election. On the physical market 5300.5300 is the level that my system is targeting.
- The release of the NAB’s business survey today may fade into the election background but that does not mean it isn’t still an important pointer to where business is seeing the economy now and in the months ahead. Recently business conditions and sentiment have dipped a little in this survey but still stayed at or above their long run average. Of most interest to me however are the sub indexes which show trading, profitability and employment indexes.
Forex
- Forex traders were first out of the blocks yesterday taking the US dollar sharply higher once the news of the FBI decision hit the screens. That saw the US dollar index head back to the middle of the Bollinger bands overnight but overall traders aren’t as ebullient as stock traders.
- So this morning we have Euro at 1.1037 down 0.88% and USD/JPY up 1.38% to 104.53. Both currencies remain under a little pressure and the US dollar is likely to strengthen further should Clinto prevail because it would also strengthen the chances of a Fed hike next month – already higher overnight with the improvement in sentiment across markets. That of course increases the policy divergence driver which has helped the US dollar.
- But it’s not all universal US dollar strength.
- The Mexican Peso which was at 19.02 on Friday night is at 18.63 this morning with the Mex 2% stronger. Against the Yen – my favourite Clinton/Trump proxy – the Mex is up 3.53% with MXN/JPY at 5.60…close to recent highs.
- The little engine that can’t – the Aussie dollar – is at 0.7716 and looking solid above 77 cents for the first time in ages. As I have been writing recently there are almost universal positives for the Aussie right now and it was uncertainty about the election and this supply zone above 77 which was holding it back. The material improvement in risk appetite needs to be confirmed by a Clinton victory or all bets are off for the Aussie – amongst other assets. But this could be the time for the Aussie to grind higher
Commodities
- Crude Oil is higher this morning but has lagged the overall bounce in markets because of lingering doubts about OPEC’s ability to stitch a deal up. You’ll recall the Algerians said over the weekend that the deal is still coming and overnight we heard from OPEC secretary general Mohammed Barkindo said that not only is OPEC working toward the deal but Russia is still ready to play ball.\
- Barkindo told Bloomberg “we as OPEC remain committed to the Algiers accord. I have heard from the highest quarters in Moscow that Russia is on board”.
- Looking at the price action WTI found support at the 200 day moving average on Friday night after the rumours the Saudis were cracking heads and threatening to pump everyone else into oblivion were denied. 22 or the past 24 hours weren't overly positive price action but then in the past couple of hours WTI has taken off and is now up 2% at $44.97 - I’ll look for further signs of stabilisation in the days ahead.
- Gold did as suggested yesterday once the FBI news broke and fell into the $1280 convergence zone where the 200 day along with my 15 and 30 day moving averages sit. $1265/70 is the next stop is $1280 gives way.
- Copper, Copper – the squeeze continues as we have been discussing here and in my morning videos. After spending months languishing relative to the rest of the commodity bloc’s recovery copper leapt another 2.06% last night to $2.30 a pound. That’s the highest level since March – It’s looking overcooked but a break would be decisive.
Today's key data and events (all times AEDT)
- Australia - National Australia Bank's Business Confidence (Oct), National Australia Bank's Business Conditions (Oct) (11.30am)
- New Zealand - Nil
- China - Trade Balance USD (Oct), Exports (YoY) (Oct), Imports (YoY) (Oct), Trade Balance CNY (Oct) (1pm)
- Japan - JP Foreign Reserves (Oct) (10.50am); Coincident Index (Sep), Leading Economic Index (Sep) (4pm); Machine Tool Orders (YoY) (Oct) (5pm)
- Germany - Industrial Production s.a. (MoM) (Sep), Industrial Production n.s.a. w.d.a. (YoY) (Sep), Imports (MoM) (Sep), Current Account n.s.a. (Sep), Trade Balance s.a. (Sep), Exports (MoM) (Sep) (6pm)
- EU - Nil
- UK - BRC Like-For-Like Retail Sales (YoY) (Sep) (10.50am); Manufacturing Production (YoY) (Sep), Manufacturing Production (MoM) (Sep), Industrial Production (MoM) (Sep), Industrial Production (YoY) (Sep) (8.30pm); Inflation Report Hearings (9pm); NIESR GDP Estimate (3M) (Oct) (2am)
- Canada - Housing Starts s.a (YoY) (Oct) (12.15am); Building Permits (MoM) (Sep) (12.30am)
- US - U.S. Presidential Election (24h); NFIB Business Optimism Index (Oct) (10pm); Redbook index (YoY) (Nov 4), Redbook index (MoM) (Nov 4) (12.55am); JOLTS Job Openings (Sep) (2am); 52-Week Bill auction, 4-Week Bill Auction (3.30am); 3-Year Note Auction (5am);
Have a great day's trading