6 things Australian traders will be talking about this morning

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The Clinton bounce continues as traders the world over bet that Hillary Clinton will be the next US president.

Naturally that sets up a huge risk for markets today, and in the days ahead if the polls and market have got it wrong. But for now it’s positivity all around.

US stocks are up by around half a per cent with similar gains in the UK and in overnight trade in ASX futures. SPI traders have the December contract up 31 points, 0.6%, suggesting a good start when the ASX opens.

The Aussie dollar, along with the Mexican peso, and US dollar, is also benefiting from the euphoric pre-election relief rally and it’s at the top of its 3-month range as risk appetite surges. Bonds are also higher with US 10s just a point below their October high.

It’s all one highly correlated trade betting on a Clinton win. So gold is down again, copper and iron ore are surging, and the price of volatility is falling.

Now for the result.

Here’s the scoreboard (7.47am):

  • Dow: 18352 +95 (+0.52%)
  • S&P 500: 2143 +12 (+0.58%)
  • SPI 200 Futures (December): 5,277 +32 (+0.6%)
  • AUDUSD: 0.7762 +0.0044 (0.53%)

The top stories

1. Finally traders can get some clear air (we hope) – here’s the election wrap.

2. Can you believe your eyes – the Australian dollar is sitting at 0.7750. Recently we’ve seen a number of bank fair value models saying the Aussie is worth around 77 cents against the US dollar based on things like interest rate differentials, Australia’s commodity basket and so on. That helps explain why it was able to hang tough just below 77 cents over the past week or so when markets feared that Donald Trump could become president.

But investor sentiment is also a medium and short term driver of the AUDUSD, so the fact that traders were worried about Trump victory was also a handbrake on the AUDUSD’s rise on the back of the fundamentals underpinning the Aussie.

That pall has been lifted for now and markets are assuming a Clinton victory. The Aussie is at the top of its 3-month range this morning around 0.7750 and looking strong. The question is, can it get to the year’s high?

AUDUSD Daily (AxiTraader, MT4)

3. Wow – Citibank is the first Australian bank to stop taking cash. Up is down and down is up. We are now living in a bizarre era when a bank will refuse to take cash, Tony Yoo reports.

Citibank notified customers that its branches will no longer handle notes and coins from November 24. “We have seen a steady decline in the demand for cash services in our branches — in fact less than 4% of Citi customers have used this service in the last 12 months,” said Citibank head of retail bank Janine Copelin. “This move to cashless branches reflects Citi’s commitment to digital banking and we are investing in the channels our customers prefer to use.”

Tap-and-go folks, tap-and-go.

4. Here is the potentially massive handbrake on the stock market rally – even if Clinton wins. When you dig into why many on Wall Street like the prospect of a Clinton victory, you don’t have to scratch the surface too hard to see it’s just about the status quo. A Clinton presidency without control of Capitol Hill would deliver a president who will struggle to do much, the theme goes.

So apparently that’s why markets are cheering. As appalling as that is, the reality is that a status quo also leaves the Fed free to hike rates and bonds free to continue to sell off. So it’s worth noting that US 10s are less than a point off the October high as they price in a Clinton victory.

2% or 2.1% is an easy get in a positive environment and that could be a big handbrake on stocks’ relief rally.

5. India did something amazing last night – it withdrew its two biggest bank notes as legal tender. With just 4 hours notice, Indian prime minister Narendra Modi announced that 500 and 1,000 rupee banknotes were being withdrawn and were no longer legal tender. It’s a plan which is aimed at fighting corruption, and the black economy. “Black money and corruption are the biggest obstacles in eradicating poverty,” Modi said.

People have 50 days to trade in their now worthless notes – as long as they have their ID with them. Amazing.

6. DEUTSCHE BANK: ‘Bye, bye globalisation’. It’s hard to disagree with the sentiment of Deutsche Bank’s chief forex strategist George Saravelos when he says we are witnessing the unwind of globalisation. It’s exactly the issues that globalisation have caused the shrinking middle classes in the West which is driving the political backlash across the developed world and the rise of populist parties and candidates.

Will Martin has great coverage of Saravelos’ latest thoughts. It’s worth the read given it’s the path we seem to be on.

I’m Greg McKenna and you can catch me on Twitter or at AxiTrader where I am the Chief Market Strategist.

And now from CMC Markets’ Ric Spooner is today’s Stock of the Day

Domino’s back on the menu

The sell-off in high value, market darling stocks was a key feature of the ASX over recent months.

Domino’s was one victim but has staged an impressive recovery over the past week. This was courtesy of its AGM where it confirmed guidance for profit growth of 30% in F17. If history is any guide, Domino’s will over deliver on this.

However, the chart outlook provides room for caution. The recent sell-off bottomed exactly at the 38.2% Fibonacci retracement of the whole rally from $21.30 to $80.66. This is common and often turns out to be just the first move lower in a deeper correction. A possible warning sign will be if the current rally peaks between the 78.6% retracement and the resistance of the old channel support between about $75.80 and $78. The bullish scenario, on the other hand, will be if Domino’s can move quickly past its old high at $80.66

Valuations suggest there’s scope for volatility and a move in either direction from here. At 51.7 times forward earnings, Domino’s PE is bang on its average since the beginning of last year. It’s a lofty valuation with plenty of scope for downside if the market gets nervous.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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