Remember the bloke who left the Trump celebration party last week to buy $1 billion worth of stocks near the lows?
This morning that fellow, Carl Icahn, told an audience in New York that stocks have run ahead of themselves in the week since the election. Leaving aside the fact that I couldn’t agree more, perhaps that feeling is why the Dow and S&P have drifted a little in overnight trade.
Also drifting lower were gold, copper, other metals and oil. The Aussie dollar didn’t so much drift as get belted while overall the US dollar strength continued even though bonds had a calm night with the US 10-year Treasury sitting at 2.22%.
The washup is that futures traders reckon the ASX is going to open down around 14 points when trade kicks off this morning. But the reality is how the day ends for stocks, interest rates and the currency depends on the release of the wildly unreliable ABS jobs data.
Here’s the scoreboard:
- Dow: 18868+55 (-0.3%)
- S&P 500: 2175 -5 (-0.21%)
- SPI 200 Futures (December): 5,307 -14 (-0.2%)
- AUDUSD: 0.7468 -0.0089 (-1.2%)
The top stories
1. In the predators’ ball that is global forex right now it was the Aussie dollar’s turn to get bullied. It’s down 1.1% overnight and under 75 cents. The Aussie dollar had been remarkably strong in recent days compared to the weakness in the euro, yen, EM and other currencies. But with Chinese commodity traders bailing out of metals bets in the past few days, and with the AUDUSD unable to break back up into the 2016 uptrend, it seems traders decided to give it a thump to see where the real support is.
It’s at 0.7468 as I write, just 7 points off the low for the night and around 25/30 points above the bottom of the past few months’ range. That’s a tenuous place to be sitting with Australia’s notoriously volatile employment report out at 11.30am AEDT.
2. Goldman Sachs says Donald Trump is going to be bad news for the global economy, Bob Bryan reports that Jan Hatzius, chief economist at Goldman Sachs says in the bank’s 2017 outlook that if implemented, Trumponomics will give the US a short-term bump in GDP growth but be a drag on global growth.
Hatzius said that Trump’s policies have “negative spillover effects on other economies, especially in EM economies with partially fixed exchange rates or dollarized economies…The reason for the greater impact there is that the Trump agenda is likely to result in higher US interest rates and therefore a stronger dollar.”
3. And that very thing has caused an echo of the 1990s Asian crisis to sound through forex markets. The US dollar is strong. USDJPY is up above 109, the euro is down below 1.07 and even the previous resilient Australian dollar has come under fire and is back below 75 cents this morning.
But nowhere is the impact of the Trump victory being felt harder than in the EM currency space. While everyone has been watching the big sell-off in the Mexican peso and the the slide in the Chinese yuan, smaller nations have been battling currency weakness and outflows.
Last Friday the central bank of Malaysia, Negara, warned traders the offshore non-deliverable forward market for the ringgit (MYR) was not the real market and would not be supported. But yesterday Reuters reported that sources told them Negara has demanded foreign banks with access to its financial system commit to stop offshore ringgit trading. That is likely to spook a few investors in Malaysia and potentially across the EM space.
4. Bill Gross says Trump is a fox who’s been let into the hen house by American workers and he won’t help them or the economy. And there will be no bull market either. Gross said Trump’s “tenure will be a short four years but is likely to be a damaging one for jobless and low-wage American voters”.
For traders, he has a warning as well.
“Investors must drive with caution, understanding that higher deficits resulting from lower taxes raise interest rates and inflation, which in turn have the potential to produce lower earnings and P/E ratios. There is no new Trump bull market in the offing,” he wrote. Bob Bryan has more here.
5. The wash-up of all this – Brexit, Trump, the looming Italian referendum and so on – is that “politics is the new economics” for markets, says HSBC. Will Martin reports the bank’s currency team wrote this week that Trump election means “the political force is now dominant. We have been heading this way for a while, and we highlight below where political forces have already been having a much stronger impact on currency movements. For many currencies, particularly EM, a bullish or bearish view has come down to your take on the political outlook.”
It’s a good note so I won’t nick all the best bits – you can read more here.
6. Minneapolis Fed president Neel Kashkari is the new Dr Evil of banking and has a stunning plan to force big banks to break themselves up. If the GFC and the rescue of so many of the globe’s big financial institutions proved anything it was that privatised profits and socialised losses is entrenched and inherent in too-big-to-fail banks.
Global regulators have been trying to sort that out by making banks hold more capital. But the big ones still have phenomenal leverage and are still too-big-to-fail.
Now Reuters reports Kashkari outlined a plan which would double the amount of loss-absorbing equity capital for large US banks and impose a new tax on hedge funds and other asset managers.
“We expect that institutions whose size doesn’t meaningfully benefit their customers will be forced to break themselves up,” Kashkari said in a summary of his plan.
Now if president-elect Trump really wants to drain the swamp he could start with Kashkari’s plan.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
In a theme that may have further to play out, active investors began moving back into some of the recently beaten up stock market sectors yesterday. The utility sector, for example, was up 1.6%. Gas pipeline and electricity distributor, Duet Group, was one of the best performers, rallying 3%.
The thinking here is that the bond sell-off has paused and may have got a bit ahead of itself. It remains to be seen just how much fiscal stimulus the Trump Administration is able to get through Congress and at best, it is going to be a considerable time yet before it actually starts.
However if, like me, you believe that bond yields are likely to rise quite a bit further over the next 18 months, any rally in utilities we see now may present a selling opportunity.
I’ve marked 3 possible resistance levels on the Duet chart below. The middle one around $2.36-$2.40 would look pretty decent value if you thought, Australian 10 year bond yields are likely to end up in the 3.5-4% range.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC