Markets continue to be driven by reactions to Donald Trump’s election victory. The US dollar is still rallying, bonds are selling off and even though stocks slipped a little on Friday night, the major indexes are still only just below record highs.
That’s left the local stock market on the cusp of a break higher if traders want to take the bit between their teeth. Futures traders have the December contract up 6 points this morning and just a couple of points below the level where the chartists suggest a break higher could begin. Certainly the local market looks to have lagged the US moves but part of that could be the coincident with the commodity market moves last week.
That commodity volatility and US dollar strength also weighed on the Australian dollar last week with Friday’s close the lowest since June. The Aussie is at 0.7322 this morning and looks under acute pressure.
Elsewhere the yen, euro, and EM currencies remain under pressure from US dollar strength. That’s something that, along with rising rates, is also pressuring gold, while copper’s post-spike consolidation continues. Oil is higher as we get into the last 10 days before the all-important OPEC meeting.
Here’s the scoreboard:
- Dow: 18867 -36 (-0.2%)
- S&P 500: 2181 -5 (-0.2%)
- SPI 200 Futures (December): 5,369 +7 (+0.1%)
- AUDUSD: 0.7320 -0.0096 (-1.3.%)
The top stories
1. The Australian dollar closed the week at its lowest level since June. The AUDUSD is more than 1% lower than this time Friday morning. And after spending months in a 0.7450/0.7750 range, the Aussie has unceremoniously lost more than 4 cents since the election victory for Donald Trump. Last week traders were talking about the previous week’s “bearish engulfing candle” as a reason to sell. While this week it’s a combination of ugly charts and the stronger US dollar.
That and the recent reversal of commodity market strength is weighing. Next stop is 0.7290 and if that breaks it could be all the way back to 0.7150 where the rally began back in May. Here’s a chart.
2. This is the most honest Trump note I’ve read – Economist on Trump’s impact: ‘¯\_(ツ)_/¯’ Money is flowing into stocks, out of bonds and emerging markets as traders and investors bet they know what the outcome of a Trump presidency offers – even in its gestation.
But Bob Bryan reports, Capital Economics chief economist Paul Ashworth does not know what to make of President-elect Donald Trump’s impact on the economy. It’s worth a look. More here.
3. There are massive capital flows driving the markets moves at the moment. Barrons reports that Charles Biderman, the head of TrimTabs Investment Research which tracks money flows, says his data shows $44.6 billion flowed into US equity ETFs in the 7 days after the election. That’s the second biggest weekly flow on record behind flow in July 2007. Ahem!
Separately, Akin Oyedele reports Bank of America Merrill Lynch says a “violent rotation” is taking place in the market. “If Brexit marked 5,000 year low in global interest rates, Trump marked [the] moment investors started to position for [a] bond bear market,” Michael Hartnett said.
Jeffries Sean Darby agrees, writing “Last week’s fund flow data may go down in history as the first real indication of the switch from bonds to equities”.
4. Mohamed El-Erian says Donald Trump’s economics policies can continue to lift bond rates. Writing over at Bloomberg, the Allianz global advisor and ex-PIMCO MD says that “Trump’s ascent to the White House is more than a seismic political shift. It has already moved markets and is influencing expectations about economic prospects.”
He goes on to say that if Trump’s policies stay positive, steers clear of stagflation, and works well with Congress, “his administration has the potential to encourage interest-rate convergence consistent with higher economic growth and greater financial stability”.
In English, that means higher rates.
5. Stagflation? Wall Street is worried that could be the end result of Trumponomics. I’m a bit perplexed by this one given the US employment market is relatively tight but Bob Bryan reports that since the election of Donald Trump, economists and analysts have once again begun to bring up the idea of stagflation hitting the US economy.
The argument seems to run the US economy is doing okay, so Trumponomics won’t have as much traction as it would if the economy was in a hole. But also that because of where the economy is in the cycle, the Fed will need to get busy and aggressive.
I don’t buy it – but it’s worth the read to challenge your thinking.
6. And here is everything you need to know about the events and data in this Thanksgiving-shortened week. How far will the Trump rally go? What about this Italian referendum? Oh, and data as well.