The merry-go-round of picking winners in a Trump world dominated markets overnight.
Banks are doing well in the US, as are energy stocks, basic materials, and healthcare. But tech and utilities are under pressure. You can see the divergence in the performance of the three big US indices. The Dow is up 1.2%, the Nasdaq is down 0.5% and the S&P 500 is up 0.4%.
That winner-picking mantra continued across other markets too.
The Aussie dollar had a wild night, the yen and Asian currencies are under pressure, sterling is finding some forex love and the euro is under pressure. Oil is down as Trumponomics shakes up the energy industry (item 6 below) and gold is losing as rates rise – the US 10 year is at 2.13%, the highest since January. But gold should do better in reflation.
Copper is up again as is iron ore.
But the wash up for the ASX today looks like a slightly down day if futures traders are right. They currently have the December SPI 200 contract market down 8 points. But as Henry Jennings from Marcus Today said to me yesterday – we’re not in Kansas anymore, so anything can happen.
Here’s the scoreboard 19 minutes from the close:
- Dow: 18811 +221 (+1.19%)
- S&P 500: 2170 +7 (+0.35%)
- SPI 200 Futures (December): 5,334 -6 (0.1%)
- AUDUSD: 0.7601 -0.0053 (-0.7%)
The top stories
1. Australian dollar traders are a bit lost – but the bears are winning the battle. The battle being raged in markets as traders pick winners on stock markets, bet on increased interest rates, and sell Asian currencies is all about trying to figure out what assets will do better under Trump and what assets won’t. In many ways the hardest asset on the planet to figure out is the Aussie dollar. It benefits from reflation, commodity prices that go with that, with US and global growth that also flows, and from investor risk appetite. But a stronger US dollar is still a stronger US dollar and the Aussie is still a great Asia proxy so traders wonder what will happen to the region – China tariffs? – and by extension the Australian economy and AUD.
So the battle rages and Australian dollar traders are a bit lost. Overnight the AUDUSD traded through a massive range rallying in Europe to a high around 0.7740 before collapsing to 0.7559, before it rallied again, and now it’s falling back to 76 cents.
The bears have it for the moment and the charts suggest a break of 0.7550 could see heavy selling.
2. This is my favourite article on Business Insider in the past 24 hours – BLACK SWAN FUND: Markets have a ‘volatility blind spot’ with Trump. I purposely left out the rest of the title to this article – “and could drop by at least 25%” – because I think that clouds the true strength of this take on markets.
“I personally think this was a turning point for implied volatility going forward as the boundary between knowledge and uncertainty has just changed. Uncertainty has risen but price volatility hasn’t. As the level of uncertainty continues to rise we expect volatility will rise too. This means that the current level of implied volatility is probably below what it should be.”
In English, that means Haworth says markets are underpricing the risk of a shock. He’s not saying right away, but he is worried about the bond market sell off, and he says markets are underestimating the increased uncertainty that comes with Trumponomics.
3. Ray Dalio agrees – “There is much more that we don’t know than we do know.” The world’s biggest hedge fund isn’t sure yet what to make of Donald Trump’s election to the US presidency. That’s the big takeaway from an investor note that Ray Dalio sent on Thursday, two days after Election Day.
“There is much more that we don’t know than we do know,” Dalio wrote in a client letter viewed by Business Insider. “Our guess is that the markets will increasingly focus on what he is likely to do and less on how sensible he sounds.”
More uncertainty normally comes with more volatility. Rachael Levy has more here.
4. US bonds are getting hammered with 10s at the highest level since January. Infrastructure spending, running the economy hot, and more debt are a great combination to drive the bond market vigilantes insane right now. So US 10s at 2.12% this morning are at their highest level since early January.
Rising bonds are a handbrake on stocks in the long run but there is no reason they can’t both rise at the same time for a while. Jonathan Garber goes around the bond market grounds here. And here is the chart of US 10 year treasuries – that’s a big break technically.
5. But bonds rising is not a bad thing if it is because of economic optimism – and that’s what one of the best hedge managers on the planet thinks is happening. Stanley Drunkenmiller is in the Pantheon of hedge fund managers, up there with his old boss George Soros, and of course, Ray Dalio. He’s one of the guys whose views I’ve always listened to. So when he says he’s “very optimistic” on the US economy it adds to my own bullishness.
But he also thinks bonds are going higher but neatly explains why that’s not necessarily a bad thing.
Tina Wadhwa reports he told CNBC: “I think interest rates are going to go up. I think they’re going to go up a lot. I think it’s just a more optimistic view about economic growth, and when you have absurd interest rate levels and you combine it with a change in expectation on economic growth, interest rates have to go up and I think they’re going to go up a lot more worldwide.”
6. Donald Trump’s win could cause a major shakeup in global energy. The geopolitics of what OPEC and Russia, and Venezuela – amongst others – are trying to do with global oil production caps and cuts just got a whole lot harder under a Trump presidency I reckon. And I wanted to share Elena Holodny’s great take on the implications for the global energy industry.
It’s important because this is in no small part where the non-US global inflationary pulse would/is coming from. Interestingly though if there is a reversal on Iran that could do OPEC’s work for it. Maybe.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
You’ d have needed to be nimble to get set but during Wednesday’s market sell-off, Computershare briefly touched the top end of the support and Fibonacci retracement level I outlined in 6 things a few weeks ago.
Yesterday, it was one of the market’s star performers, closing up 12% and 14% above Wednesday’s low. This was courtesy of yesterday’s AGM where management confirmed previous guidance for F17 and provided a solid progress report on implementing current strategy.
Computershare also benefits from rising interest rates and a stronger $US. It holds $US 15.7bn in client funds and a 1% increase in rates will deliver an additional $US 47m in interest earnings on those funds. The stronger $US helps because it reports it derives around half its income in the US and reports in $US.
However, yesterday’s rally sees it trading at a respectable 15.7 times forward earnings and approaching chart resistance between about $11.80 and $12.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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