Originally published by AxiTrader
Quick Recap
I write this note each morning before I go on Sky Business. It's normally finished around 6/6.15 am and then updated for an 8/8.30am posting on the web. Normally not a lot changes but news this morning that FBI Director James Comey has again written to congress have shaken things up for Asian markets this morning.
We've already seen the US dollar roar higher against the Euro and the Yen which are at 1.1058 and 104.41 respectively. The positive mood even saw the Aussie trade above 77 cents briefly - but it's back below again.
We'll likely see stocks in the region open higher this morning as well and US futures will reverse off the 9 days of losses we've seen in the S&P 500 recently.
I already believed, and wrote in the early edition, that the jitters seem light to me and the market appears to be wary of a Trump victory but still pricing Hillary Clinton in the White House. What it all means now is, like Brexit, markets are likely going to price little chance of a Trump win - that is a huge asymetric risk.
As evidence I offer the fact 9 days of loses is only about a 3% move something Howard Silverblatt from S&P Dow Jones said Friday that there has been 298 times when the S&P 500 has lost more than the cumulative 9 day loss in one day.
Wednesday in our time zone will be huge. If Clinton looks like winning I’d expect a relief rally. But it Trump carries Florida and North Carolina markets could get funky.
What You Need To Know
International
- US non-farm payrolls missed to the low side again Friday night with a print of 161,000. But the fact that there was a strong upward revision to the September data from 156,000 to 191,000 and solid wages growth – at the highest level since the recession – continues to point to a tightening labour market. That gives the Fed all it needs to raise rates in December. But the CME estimates the odds of a hike are just 66% - no doubt constrained by election uncertainty. Should Hillary Clinton win expect those odds to spike back above 80%. A Trump victory would likely see the odds diminish until markets settle down again. How long that takes depends on many factors.
- Polls over the weekend seem to suggest Hillary Clinton remains in the lead. I strongly believe market pricing reflects this expectation.
- Donald Trump is not the Irish Rugby team. In what was apparently a well earned victory – according to no less than the great Sean Fitzpatrick – the Irish beat the All Blacks in Chicago (yes the Cubs home town) over the weekend. That meant there are more than a few again extrapolating this wonderful year of sporting upsets and underdoggedness into a parallel with Brexit and a Trump victory. Of course as I wrote at Business Insider on Friday behavioural psychologists would call this an availability bias – that is we humans who love stories and patterns and remember stuff that happened recently fit this into a narrative. But of course Ireland, the Cubs, Leicester City (look how they are doing now), the Western Bulldogs, and Cronulla have nothing to say about Trump really.
- But, that said I still don’t think a Trump victory is priced. We are all instant experts these days on the US electoral college but it does seems from what I read that because this is a state by state poll the maths of the situation mean that it is a hard ask for Donald Trump. So, like Brexit earlier this year we’ll be watching the state by state roll out of results in our time zone. And given the market has only cautiously reversed US dollar strength, seen bonds rally a little, and the S&P has only dipped 3% even after 9 days of losses tells me traders are still betting on a Clinton victory. So we’ll have an interesting day Wednesday.
Elsewhere
- Chinese Premier Li said over the weekend where he reiterated that the world’s second biggest economy would continue both with the reform program and steady growth. Li said China will continue with its “medium high” growth rates.
- British PM Teresa May is off to India this week but in a piece in the Sunday Telegraph May said “ the people made their choice, and did so decisively. It is the responsibility of the government to get on with the job and carry out their instruction in full”. She added that members of parliament needed to “accept what the people decided”.
- Speaking of Brexit – the CBI reported over the weekend that British business reported stronger activity in the 3 months to October. "Manufacturing exports are riding high on the back of weaker sterling and consumers are continuing to spend on the high street, but activity is more modest in the services sector," CBI chief economist Rain Newton-Smith said. As I have written many times a collapsed currency can cure many ills if you have an externally facing economy. This is the lesson of Australia and it’s most likely to be the lesson of Britain as well.
Australia
- It’s was looking like it was going to be another bad day on the S&P/ASX 200 today based on the fact that the December SPI contract was down another 29 points at 5124 on Saturday morning. But I wrote earlier that even before this FBI news the charts are a little overcooked for the SPI but also look terrible. I'll temper the terrible for the moment unless the ASX physical markets trades below 5180 today - Friday's close.
- I'd expect the SPI 200 to be back above 5150 today - handsomely if this recovery has any legs.
- Australian markets will take their lead from offshore events this week. We have the release of important business and consumer surveys from the NAB and Westpac but these will be overshadowed by the election. Although the RBNZ meeting and announcement this week will get some interest.
Forex
- The US dollar is sharply higher in Asia this morning. It is only very early doors and we'll see how markets across the region go and especially how US equity futures react to the FBI news.
- But it is reasonable to expect traders to take the FBI announcement positively. Though the price action less than 2 days before the polls open reminds me of the trade immediately before the Brexit vote - just saying.
- For the Aussie dollar the inability to break higher was not unexpected all things considered. Uncertainty is never the Aussie friend. But with all the other positives and a weaker US dollar the chance of a rally was there for the bulls to take. But 77 cents remains a bridge too far. For now.
Commodities
- After a wild ride Crude Oil found support at the 200 day moving average on Friday night after an unrelenting collapse since the highs above $52 back in October. That support at $43.55 now satisfies the target I had a week or so ago for oil. It is also roughly the bottom of the range since August and also stretched levels in terms of the Bollinger bands and stochastics…but it is trending nicely.
- But for me the target was the target and the election is too close so everything went flat for me Friday night.
- One thing worth noting is that the Algerian’s are out saying the deal agreed at the meeting in September is still on track and the “technical” committee is working on things. But as the most recent production data showed the cuts need to be deeper than previously agreed if OPEC is to get back to their target. Friday’s dip was on the back of a rumour the Saudis are threatening to go postal and ratchet up their production if the other OPEC members don’t play ball. It was denied, hence the rebound.
- Gold is at $1304 an ounce as the uncertainty continues to buoy prices. I'd expect gold to be back trading in the $1270's or $1280's today if risk appetite really gets a lift on the FBI news, But this election still seems close and $1380 is the post-Brexit high and the level to think about if Trump wins.
- Copper is still squeezing higher at $2.26 a pound.
Today's key data and events (all times AEDT)
- Australia - AiG Performance of Construction Index (Oct) (9.30am); ANZ Job Advertisements (Oct) (11.30am)
- New Zealand - Nil
- China - Foreign Exchange Reserves (MoM) (Oct) (n/a)
- Japan - BoJ Monetary Policy Meeting Minutes (10.50am); Labor Cash Earnings (YoY) (Sep) (11am)
- Germany - Factory Orders s.a. (MoM) (Sep), Factory Orders s.a. (MoM) (Sep) (6pm)
- EU - Sentix Investor Confidence (Nov) (8.30pm); Retail Sales (YoY) (Sep), Retail Sales (MoM) (Sep) (9pm)
- UK - Halifax House Prices (MoM) (Oct), Halifax House Prices (3m/YoY) (Oct) (7.30pm)
- Canada - Nil
- US - Labor Market Conditions Index (Oct) (1am); 3-Month Bill Auction, 6-Month Bill Auction (3.30am); Loan Officer Survey (n/a); Consumer Credit Change (Sep) (7am); U.S. Presidential Election (24h)
Have a great day's trading