Originally published by AxiTrader
Quick Recap
The rally continues, just, as the data and Trump support the market even as traders bet the Fed is lock – and more. Bond’s are a point higher with U.S. 10-Year at 2.3% and the US dollar regained it’s poise against the big currencies.
But the Aussie is still doing well.
Crude Oil rallied hard, collapsed, recovered – OPEC is at it again.
What You Need To Know
International
- Stocks in the US and Europe are higher as the Trump rally continues and US data again confirms the US economy looks like it is on a reasonable footing as Donald Trump prepares to become the 45th president.
- On Trump, yesterday the president-elect issued his first address to explain his transition progress and priorities for the first 100 days in office. I covered this in depth in my AsiaFX piece yesterday, but in summary while he is a lot more circumspect as president-elect than he was as the GOP candidate it is clear the policy platform he put forward still has pride of place in his plans.
- In setting out his priorities, which included energy reform, national/cyber security, regulatory reform, immigration, ethics, and trade he highlighted his plan to withdraw from the Trans-Pacific Partnership (TPP) as his first priority. He said he’ll be guided by a "simple core principle, putting America first". And he also said "Whether it's producing steel, building cars, or curing disease, I want the next generation of production and innovation to happen right here, on our great homeland, America - creating wealth and jobs for Americans".
- Speaking of conciliatory – and a window into president Trump – his campaign adviser Kelly Ann Conway said Trump will not pursue Hillary Clinton over the email scandal noting that the campaign is different to the presidency.
- US existing home sales is the latest piece of data to reinforce the US economy is already going okay, even before the Trump policy prescription takes place. The National Association of Realtors said on Tuesday existing home sales increased 2.0 percent to an annual rate of 5.6 million units last month, the highest level since February 2007.
- After the new home sales traders in US money markets see a Fed rate hike as a sure thing in December I even saw a headline with odds above 100%.
- The European Commission did something very strange a day ago. It said the bloc should provide more fiscal stimulus and singled Germany out for a little attention. It’s peeved German finance minister Schaeuble who told the EC to go pick on someone else. But it’s another sign of why many months ago I said the bond market had turned – fiscal stimulus is coming.
- It’s why Trump’s plans have resonated so loudly with bond traders. They were already primed by the change in CB and political rhetoric.
- The Shanghai metals exchange yesterday increase margin requirements for metals as the rampant rally continued.
- The IMF said it had downgraded it’s outlook for Mexican growth in the wake of Donald Trump’s election. The fund said it had lowered this year’s – yes this year’s – forecast from 2.5% to 2.1%. Trump was only elected a couple of weeks ago so the implications of this new view are either that the IMF is using Trump to hide a big miss that was already in the pipe OR Mexican growth is going to have an awful 8 week’s to end the year.
- Nigeria’s central bank held its rate steady at 14% :S, it’s Hungarian counterpart did the same keeping it’s base rate at 0.9% but eased the overnight rate 15 basis points to 0.9%. Interestingly Hungary agreed a 15% increase to the minimum wages as well overnight. South Africa’s central bank is expected to keep rates steady tomorrow.
Australia
- Finally a good day for the ASX yesterday with the market up 62 points at 5413 for a gain of around 1.2%. The strength in mining stocks was a big part of the rally while energy stocks also joined in given the big surge the night before. That strength is likely to reverse today for energy stocks although the performance of metals should help the miners hold firm.
- Looking at the day ahead the Futures traders are a little circumspect given the proximity over overhead resistance stretching back to the years highs and the recent failure at 5500. This is the resistance I had targeted earlier this week as the next level once 5370 broke and the high overnight was spot on the trendline. So target achieved in many ways. If the buyers come in and take the market up and through this level a move back toward 5500 is ion the offing.
- Overnight RBA Assistant Governor Chris Kent was pretty upbeat on the economy. He noted the readjustment in the mining investment boom was around 80% through and that “growth of activity in the non-mining sector has risen gradually over recent years. That improvement has been fostered by low interest rates and the depreciation of the exchange rate since 2013. Growth of non-mining economic activity is expected to be around average over the next two years” .
- He also noted the improvement in the terms of trade but noted “the improved outlook for commodity prices is not likely to lead to a noticeable pick-up in mining investment (in the near term at least). Even so, if our forecasts are right, the terms of trade will shift from the substantial headwind of recent years to a slight tail breeze providing some support to the growth of nominal demand”.
Forex
- The German US bond spread remains as wide as its eve been putting continued downward pressure on the Euro. That might be something that the ECB wants given overnight that ECB president Mario Draghi said “The return of inflation towards our objective still relies on the continuation of the current, unprecedented level of monetary support, in spite of the gradual closing of the output gap”. Elsewhere Benoit Coeure also said rates are staying low and monetary accommodation high. He said time for a windback of ECB stimulus had “not yet” come.
- When you view the euro move in this context it’s not hard to see why Euro has continued to fall. Here’s the chart of the Euro versus the German-US 2 year bond spread(inverted).
- And while the euro is just holding above 1.06 this morning the yen has weakened back to pre-earthquake levels at 111.20 as the US dollar has regained some of it’s poise against the these two, the pound (1.2384) and Swissie (USDCHF 1.0110).
- And although the Aussie and Kiwi are stronger the US dollar also pushed back against the commodity bloc which had been materially stronger at one point overnight. The Aussie is at 0.7388 after trading as high as 0.7413 at one point. Likewise the Kiwi is at 0.7041 but the Canadian dollar has reversed losing on both the US recovery and the big sell off in oil from the highs.
- The Fed is a lock and there is every chance the 2 rate hikes the market is pricing for 2017 completely undershoot what the Fed’s dot plot will show FOMC members expect the path of interest rates to be in the next few years. While we know that Janet Yellen has said she would entertain the idea of running the economy hot the impact of Donald Trumps policies could challenge the extent or time frame under which she and her colleagues would see such a benign policy as appropriate. 4 hikes next year seem more appropriate to me.
Commodities
- Copper rallied with other metals in Shanghai and across the globe overnight as trader bet on inflation and growth but also because supply is a lot tighter than many thought it would be around now. Traders are still expecting an uptick in supply in 2017 which took the top of the rally.
- OPEC are at it again, dancing around guns in hand trying to shoot itself in the foot. Maybe that’s a bit unfair the pre-meeting meeting in Vienna overnight has actually moved toward the very thing OPEC is saying it will do with Reuters reporting the November 30 meeting will debate a 4-4.5% production cut. That would take up to 1.2 million barrels out of the market even with exemptions for Nigeria and Libya. BUT Iran and Iraq are still arguing about the cuts it seems with the Iraqi oil minister saying it is “unfair” if Iraq has to cut production because it is at war. That said after a wild night the Iraqi's have now said the cartel is closing in on a deal.
- Reuters also quoted a source saying “Eighty-five percent of proposed OPEC cuts are from Gulf countries but Iran is still not in favour” and that Russia is still not on board.
- Naturally as a result oil, which was sharply higher at one point overnight trading at $49.17 in WTI terms is now down 1.18% at $47.67. It’s also slipping back under the uptrend it had managed to break back inside.
- Gold is still struggling at $1211 this morning.
Today's key data and events (all times AEDT)
- Australia - Construction Work Done (Q3) (12.30pm)
- New Zealand - Nil
- China - MNI Business Sentiment Indicator (Nov) (12.45pm)
- Japan - Labor Thanksgiving Day (24h)
- Germany - Markit PMI Composite (Nov), Markit Services PMI (Nov), Markit Manufacturing PMI (Nov) (7.30pm); 30-y Bond Auction (n/a)
- EU - Markit Manufacturing PMI (Nov), Markit Services PMI (Nov), Markit PMI Composite (Nov) (8pm); EU Financial Stability Review (9pm)
- UK - Nil
- Canada - Nil
- US - API Weekly Crude Oil Stock (8.30am); MBA Mortgage Applications (Nov 18) (11pm); Continuing Jobless Claims (Nov 11), Initial Jobless Claims (Nov 18), Durable Goods Orders (Oct), Durable Goods Orders ex Transportation (Oct) (12.30am); Housing Price Index (MoM) (Sep) (1am); Markit Manufacturing PMI (Nov) (1.45am); Michigan Consumer Sentiment Index (Nov), New Home Sales (MoM) (Oct), New Home Sales Change (MoM) (Oct) (2am); EIA Crude Oil Stocks change (Nov 18) (2.30am); EIA Natural Gas Storage change (Nov 18) (4am); FOMC Minutes, 7-Year Note Auction (5am);
Have a great day's trading