New record highs for the big four US stock market indexes capped off a strong Thanksgiving week for markets. European stocks were higher as well while the ASX 200 had its best weekly close since June.
The positivity and continued metals rally has helped the Australian dollar rally off last week’s lows and it’s back in the mid 74 cent region in early Asian trade this morning.
Oil fell as OPEC still struggles to get agreement before this week’s meeting, gold is under pressure, but iron ore and copper are stronger again.
Here’s the scoreboard (7.35am AEDT):
- Dow: 19152 +69 (+0.36%)
- S&P 500 2213 +9 (+0.34%)
- SPI 200 Futures (December): 5,514 +0 (+0.0%)
- AUDUSD: 0.7437 +0.0033 (+0.45%)
The top stories
1. So the US election may not actually be over. That’s my takeaway after hearing on the weekend that the Hillary Clinton camp will be joining the efforts of Jill Stein, Green candidate for president, to open a recount in Pennsylvania, Wisconsin, and Michigan where Donald Trump’s collective win was a little more than 100,000 votes.
The three states have 46 electoral college votes. And while naturally I’m no US electoral college expert, it seems if the results are overturned the recount could actually turn the election. Donald Trump went on an epic tweetstorm using Hillary Clinton’s own words against her once the news broke.
But I’m wondering if traders will care? If they do, we could see a bit of a reversal of recent moves around global financial markets. We may not of course. But it would be an excellent excuse given the stretched nature of the US dollar and bonds.
2. Here’s the level traders will be watching on the ASX 200 today. There is no doubt the 200 index’s close above 5500 on Friday, the first since June, is a positive sign for local stocks. But there is one hurdle the chartists are watching which needs to break if the Santa Claus rally is to begin.
That level is 5522. It’s where the trendline sits that stretches back to 2015’s highs around 6000. Here’s the chart from my Reuters Eikon terminal.
3. Here’s the argument over the outlook for US stocks and as a result, global stock market rallies. Barron’s has two articles in this week’s magazine which neatly highlight the question facing US stock market investors.
One quotes conventional arguments about valuation and expectations and says Wall Street is borrowing from next year’s gains while the other quotes an investor who is bullish on the Trump presidency.
On his bullishness, Barron’s asked Larry Jeddeloh, a 40-year veteran of the markets and founder and editor of The Institutional Strategist newsletter, how he’d reconcile stocks with big deficits that a Trump presidency might bring. Jeddeloh said he sees this as “one of the best opportunities” he’s seen in a long time.
The stock market is underpriced relative to the growth rates we will see in the economy. Yes, deficits will swell, and the government will ignore them and spend their way through. The minute the new administration hits Washington, you’ll see a lot of regulatory steps wiped out. That’s the low-hanging fruit that will boost growth. They’ll cut tax rates across the board. Economic growth will accelerate to, say, four to eight quarters of 3%-plus growth [it is 2.9% now] and perhaps a couple of spikes to 4%. It will drive bond rates higher. The 10-year yield will go to at least 2.95% and possibly up to 3.5%.
He thinks the S&P goes to 2400 next year and 3000 in three years.
4. The repatriation of part of the $2.5 trillion in US dollars held offshore by US companies could drive the US dollar much higher. President-elect Trump is proposing a one-off haircut on tax payable by companies holding profits offshore of 10% instead of the 35% currently applicable if companies bring that back to the US.
The Wall Street Journal reports Daragh Maher, head of US foreign-exchange strategy for HSBC said: “However small, however big this flow of money will be, it will be positive for the case of dollar strength. There will most likely be an inflow into dollars.”
That notion is supported by IRS data the Journal quotes on the flow the last time US companies were offered such a tax honeymoon. “The U.S. last introduced a one-time tax cut for repatriations a decade ago, under the Homeland Investment Act of 2004. More than $360 billion was repatriated”, the data shows.
Some tailwind. And a lot of pressure on the Australian dollar.
5. Here is a really important behavioural impact of free trade which might have helped get Trump elected. People matter in an economy. We make the decisions to spend, borrow, and invest as emotional beings not the automatons economic theory often supposes. Even corporations are driven by humans – although sometimes the corporate clobber robs management of its humanity.
I say this as way of background to an interesting story by Jeremy Berke covering new research in the USA which shows the impact on people in the regions where jobs were lost since the United States decided to grant permanent normal trade relations to China in 2000.
The research shows that, compared to the rest of the country, counties where local manufacturing businesses were more vulnerable to Chinese competition saw their job markets deteriorate more severely, and experienced greater increases in deaths by suicide and “accidental poisoning” — a category that includes drug overdoses.
This is the point of Trump’s support, of the people who supported Brexit, of the backlash against globalisation across the world. It impacts people’s lives in a way that really hurts and they can’t control. Call them dumb, uneducated, white, xenophobic – whatever you like. But this is based in economics and how it impacts people’s lives. No job, no prospects, and a declining social environment. Is it any wonder folks voted for the guy who gave them hope? What would you have done?
6. And it’s another huge week for global markets. The big OPEC meeting, US GDP, non-farm payrolls, stocks, the US dollar and of course the local data – including CapEx and retail sales – means there are plenty of fresh catalysts for trade.
And then Sunday we get the Italian referendum. I’ve got more here.
From Ric Spooner at CMC Markets, here’s today’s Stock to Watch
SeaLink Travel Group
As has been the case throughout much of this year, the broad directional movement of the ASX 200 index has recently masked larger changes in different market sectors. For example, while mining stocks have been back in favour in recent months, there has been significant profit taking in a range of “market darlings” that had trended well for a couple of years.
SeaLink, operator amongst things of the iconic Captain Cook ferries, is a case in point. It’s down around 15% since August.
This decline has seen it form a double top pattern and make the first meaningful break below its 40 week moving average. However, there is chart support around $3.75-$3.90 and it would not be hard to imagine bargain hunters starting to get interested at those levels given that this is a stock with positive exposure to a weaker Aussie Dollar and long term growth in Chinese tourism.
Ric Spooner is chief market analyst at CMC Markets. You can follow Ric on Twitter: @ricspooner_CMC
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