Tag Archives: United States

article 3 months old

Wall Street Fragile

By Michael Gable 

Yesterday we saw some early confessions from Servcorp (SRV) and Aconex (ACX), down 19% and 45% respectively. As we go to press, Virtus Health (VRT) has come out with a profit downgrade. Unlike Brambles (BXB) last week which was a stock of ours, we luckily don't hold any of those that fell yesterday. But as we've said before, it can't be avoided. Being in the market means that investors are exposed to these risks.

Yesterday's Australian Financial Review had an article on some "rock star" fund managers such as John Sevior, Hamish Douglas, and Kerr Neilson - all underperforming last year, mainly due to the last quarter or so. All the professionals cop a bit of heat every now and then in this unforgiving market.

However after two years of going nowhere, our market is poised to do well this year, and focusing on the right areas would make it even better. But as we mentioned recently, the Australian market is due for a short term pause. And last night, the US markets shown us the first signs of some short-term weakness. We have a chart on the Dow Jones [Industrial Average] in today's report.



After the initial rally on the back of the US election, the US market has actually gone nowhere for over a month now. This congestion under the 20,000 level was a bullish sign, as it was preparing to break higher. However, after doing that last week, it has failed to kick on. Last night was a warning sign where we saw markets gap down and reject those higher levels. The late rally before last night's close has seen the Dow Jones respect support for now, but cracks are appearing. Further downside from here in the next few days would be confirmation that we may see the US give back some of the gains seen since early November.
 

Content included in this article is not by association the view of FNArena (see our disclaimer).
 
Michael Gable is managing Director of  Fairmont Equities (www.fairmontequities.com)

Michael assists investors to achieve their goals by providing advice ranging from short term trading to longer term portfolio management, deals in all ASX listed securities and specialises in covered call writing to help long term investors protect their share portfolios and generate additional income.

Michael is RG146 Accredited and holds the following formal qualifications:

• Bachelor of Engineering, Hons. (University of Sydney) 
• Bachelor of Commerce (University of Sydney) 
• Diploma of Mortgage Lending (Finsia) 
• Diploma of Financial Services [Financial Planning] (Finsia) 
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2

Disclaimer

Michael Gable is an Authorised Representative (No. 376892) and Fairmont Equities Pty Ltd is a Corporate Authorised Representative (No. 444397) of Novus Capital Limited (AFS Licence No. 238168). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.

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article 3 months old

Trump Trade With A Twist

By Kathleen Brooks, Research Director, City Index

The Trump trade is back on as the key US stock indices post record highs as politics and earnings growth boosts the mood in the markets. Donald Trump’s flurry of executive orders this week have given financial markets clarity about the economic direction of the Trump Presidency, and this clarity is being rewarded with stock market gains.

Looking to the inevitable sell-off…

Of course, markets don’t go up in a straight line, and even the perma-bulls out there will be expecting a pullback at some stage, the question is when will this happen? While we don’t have a crystal ball in the City Index offices, the market does give us some clues. Firstly, the lead stock market indicators, such as the Russell 2000 and the Dow Jones transportation Index. These indices reached record highs in mid-December, and led the way for the Dow to break its milestone figure on Wednesday. But if they start to roll over, then we would expect the major indices to follow suit.

Can volatility tell us where stocks will go next?

The other area to watch is volatility. As we have mentioned before, the current post-election rally in stocks has been accompanied by a decline in volatility. The Vix index fell to 10.70 on Wednesday, its lowest level since 2014, when it hit 10.28. If we breach this level, then some may get nervous that a stock market sell off could be in sight. However, the record low for the Vix was 8.89 in 1993, so even if we fall below 10.0, there is precedent for the Vix to go lower, and potentially for stocks to eek out further gains.

Another area to watch is Treasury yields. The 10-year yield rose 8 basis points on Wednesday, which is a large daily move for this market. Experts (if you trust them) have been calling 2.65% a line in the sand for the 10-year yield, and if it breaches this level then it may herald the start of a multi-year bear market for US bonds. If we breach this level then it is worth watching what stocks do, as rising borrowing costs could trigger a sell off in stocks, albeit with a bit of a lag.

Dollar proves Trump trade could be fading

The “twist” to the Trump trade, as mentioned in the title, is the dollar. Post the election, the dollar, bond yields and stocks all rose together. In normal cycles, bond yields rise, which pushes up the dollar, both of which weigh on stocks. However, in recent days stocks and bond yields have risen yet the dollar has slumped; it is the worst performer in the G10 so far this year. The decline in the dollar can be attributed in part to concerns voiced by President Trump and his choice of Treasury Secretary, Steven Mnuchin, who both raised concerns about a strong dollar and the negative impact on the US economy. Thus, US politicians talking down the greenback is a key risk for FX traders in the coming weeks.

The euro could be one to watch in the coming days after German 10-year bond yields reached their highest level for a year. Treasuries tend to lead global bond markets, so watch out for further upside in European bond yields. Inflation in Germany is at a 3-year high, yet bond yields are very low, this could be the perfect mix for a sharp spike higher in European yields, which could boost the euro.

Trump’s Wall fails to knock peso

The Mexican peso rose more than 2.5% against the dollar on Wednesday, seemingly triggered by Trump’s comments about Mexico, including his issuing an executive order to build the wall on the Mexico/ US border, something he promised on his campaign trail. However, the more Trump talked about the wall on Wednesday, the more the Mexican peso seemed to rally. Talk about sell the rumour, buy the fact. Perhaps Trump’s new mantra should be buy the peso, as this would help to make American goods attractive to one of its closest trading partners.

Watch out for our UK GDP preview coming out later. Overall, we are on high alert for signs that this stock market rally is coming to an end. Right now we don’t see any signs that suggest an end to the rally is in sight in the short term.

 
Now you can follow us on Twitter: http://twitter.com/FOREXcom. Visit the website at www.cityindex.com.

Re-published with permission. Views expressed are not by association FNArena's (see our disclaimer).
 
 
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that FOREX.com is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Conduct Authority (FCA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan. Please read Characteristics and Risks of Standardized Options (http://www.optionsclearing.com/about/publications/character-risks.jsp).

Technical limitations

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article 3 months old

Trump: Making America Volatile Again

By Kathleen Brooks, Research Director, City Index

Friday 20th January 2017 will see Donald Trump sworn in as the 45th President of the U.S.A. He has already proved to be a controversial choice for President, and his prolific tweeting has highlighted a sharp shift with the previous administration.

Trump has been vocal about his plans for the economy in the run up to his inauguration, and US financial markets have basked in the pro-business change in policy that is expected once the new President takes office. However, the focus post the inauguration will be how fast policies can be implemented, and whether Trump can deliver on all of his promises.

There are already some doubts starting to creep in, and in recent weeks US stock markets have pushed the pause button and traded sideways. The table below shows Trump’s promises and their market reaction:
 


As you can see, there is a lot of bullish expectations around Trump’s policies, however, there are also some major road-blocks to his vision to Make America Great Again (MAGA). The table below lists some of those challenges:
 


Trumpenomics’ threat to US growth

The biggest problem with ‘Trumpenomics’ is that fiscal expansion coupled with protectionism tend to boost growth and employment when the unemployment level is high, however, the US is experiencing a very high level of employment at the moment, so these policies could actually hinder Trump’s hopes of doubling the growth rate during his term in office.

For example, a large fiscal stimulus programme when employment levels are high does not boost production, but instead tends to increase inflation pressures. Likewise, any protectionist policies like increased tariffs on certain imports could also push up price pressures as household purchasing power remains strong.

Trump’s economic policies actually increase the risk of higher interest rates over the next four years, as the Federal Reserve tries to neutralise looser fiscal policy with tighter monetary policy. Thus, Trumpenomics could lead to a cyclical downturn in the medium term.

MAVA: Making America Volatile Again

There are two main risk factors from Trump’s Presidency, in our view. The first is a sell-off in the short-term once Trump moves into the White House. Much of the ‘good’ news for financial markets has already been priced in since November, thus, risk could get sold-off in a traditional buy the rumour, sell the fact trade.

A larger concern for traders could be the potential for increased levels of financial market volatility under Trump, as the market waits to see if and when his policies are enacted. Other risks for higher levels of volatility going forward include the President continuing to undermine certain corporations via Tweet. Boeing, healthcare and defence companies have all come under criticism from Trump in 140 characters. The US dollar also came under pressure recently, after Trump commented on the negative impact of a strong dollar.

US financial stocks, which have rallied sharply since Trump won last year’s election, have seen a wave of selling interest in the last week as investors take profit ahead of Trump taking office. The risk for financial stocks is that the President won’t be able to reduce financial market regulation, like he promised, leading to a deeper decline. Other sectors, including infrastructure are also at risk if Congress does not enact Trump’s promised fiscal stimulus programme.

Overall, the markets have been willing to give Trump the benefit of the doubt in the last two and a half months’. Now that reality hits, profit-taking could be the order of the day.


Now you can follow us on Twitter: http://twitter.com/FOREXcom. Visit the website at www.cityindex.com.

Re-published with permission. Views expressed are not by association FNArena's (see our disclaimer).
 
 
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that FOREX.com is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Conduct Authority (FCA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan. Please read Characteristics and Risks of Standardized Options (http://www.optionsclearing.com/about/publications/character-risks.jsp).

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

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article 3 months old

Investors Enjoying Festive Cheer

By Kathleen Brooks, Research Director, City Index

The market is driven by the promise of Trump – more spending, higher growth, faster wage increases and, most importantly of all for some, a reduction in regulation for the US financial sector. The markets are pricing in for a sweet economic scenario from Trump, they will overshoot, they always do, but for now until year-end more record highs are expected.

Financials are King of the Hill

The Dow Jones financial index is at its highest level since 2007, and has retraced more than 75% of its losses since the financial crisis. Under Trump, could we see bank shares return to their pre-crisis highs? The prospect of lower regulation under Trump and higher interest rates, which can boost a bank’s profitability, are driving this powerful rally in financial stocks. Investment banks are also benefitting from trading the financial markets as strong trends emerge in currency and bond markets. On Tuesday Jefferies, the US investment banking firm, announced a quadrupling of profit for Q4 on the back of trading revenue. Although not a top-tier investment bank, it is considered a bell-weather for others including Goldman Sachs and Morgan Stanley.



This is also good news for UK and European banks with IB arms including Deutsche Bank, Barclays and Soc Gen, where expectation is rising for a strong performance for Q4. Thus, we could see an extension of the banking rally, which may be enough to take the Dow above the psychologically important 20,000 level for the first time. Although financials are likely to remain important for US indices next year, there are some risks to its continued strong performance: Firstly, can the banks deliver a strong set of results for full year in 2017? These will be released in Jan and Feb, and there is a lot of expectation, which increases the risk for a downside shock. Secondly, will the US Congress actually pass any reduction of regulation? This is a concern for Q2 and beyond. If Congress isn’t as de-regulation focused as Trump then banking stocks could be in trouble in the second half of next year.

Defense Stocks: Trump not a one-way bet

Now that the Animal Spirits have been unleashed on the markets, it is worth remembering that Trump isn’t universally good news for the markets. Remember his tweet about Boeing? Trump also wants to slash defense spending, which could be bad news for the 31 key defense contractors used by the government, including Lockheed Martin, which relies on government contracts for nearly 80% of its revenue. It’s share price has fallen this month, however, it’s is only down some 7%, so if Trump needs to balance the budget and boost spending by cutting defense costs, Lockheed Martin could be at risk. Also at risk is Northrop Grumann, which relies on the US government for 83% of its revenues. Thus, in these heady times, it is worth remembering that it may not always be a one way bet when it comes to Trump and share prices.

Lloyds’ ballsy call on the UK consumer

Elsewhere, Lloyds bank saw its share price rise nearly 3% on Tuesday, even though its GBP2bn acquisition of credit card company MBNA is a brave call on continued UK consumer strength and has raised some eyebrows. Firstly, some believe that the valuation was too high, secondly, although the consumer credit business has performed well in recent years and bad loan levels are close to record lows, the outlook for consumers is not as rosy going forward as rising inflation and Brexit fears could push up bad debt levels in the UK going forward.

Lloyds may have bought at the high, which could also leave the bank on a collision course with its shareholders, as this purchase puts a potential special dividend in Jeopardy. Lloyds share price has risen strongly this month on the wave of optimism boosting the financial sector (see above). However, now that doubts have been raised about the MBNA purchase, we will be looking to see it knocks the shine off of Lloyds’ share price on Wednesday. But at this stage of the stock market rally, any pullback in financial stocks may be small and used as a buying opportunity.

The above story was originally published after financial markets closed on Tuesday in Europe. Slight amendments have been made to remove a few specific, time sensitive comments.
 
Twitter: http://twitter.com/FOREXcom. Visit the website at www.cityindex.com.

Re-published with permission. Views expressed are not by association FNArena's (see our disclaimer).
 
 
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that FOREX.com is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Conduct Authority (FCA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan. Please read Characteristics and Risks of Standardized Options (http://www.optionsclearing.com/about/publications/character-risks.jsp).

Technical limitations

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article 3 months old

The Outlook For 2017: International

This story was originally published on 6th December 2016. It has now been re-published to make it available to a wider audience.

Equity strategists and economists provide their views and forecasts for the global economy in 2017.

- Stronger global growth
- Trump offers hope, and risk
- Europe offers political risk
- Emerging markets to outperform


By Greg Peel

Strategists agree on at least one thing in their outlooks for 2017 – it will be a potentially more volatile year than 2016. That’s not particularly comforting for investors given the volatility experienced throughout the year now coming to a close.

2016 began with a collapse in commodity prices, particularly oil, and a collapse in global bank shares, given concerns over the potential bankruptcy of major European banking houses. The counter was a rush to the bottom among central banks in terms of policy easing, compounded by the Fed holding off, and holding off, and holding off again with a rate hike. Yield stock valuations soared globally.

In the middle of the year we had Brexit. No one saw that coming. Commodity prices managed to rebound somewhat on supply-side constraints, before surging ahead once more on Chinese government production restrictions and the anticipation of, and eventual delivery of, OPEC production cuts (effective from January).

Expectations for a Fed rate rise grew and grew thus when the whole Brexit scare proved (so far) to be misguided, we soon saw a violent shift in investor allocation as previously oversold commodity stocks rebounded strongly and previously overbought yield stocks were dumped.

Then along came Trump. No one saw that coming.

As had been the case with regard Brexit, the worst was feared and all and sundry were proved wrong. Trump would of course be great for America. Or at least Wall Street. Presumably.

And strategists are suggesting 2017 is going to be even more volatile?

The buzzwords for 2017 are “political risk”. Not that we haven’t experienced political risk in recent times. We recall that the word that gave us “Brexit” was “Grexit”. We recall that not so long ago, the US government shut down. But 2016 gave us Brexit, and Trump, and possibly a developed market-wide seismic shift in voter perception and power. The workers are revolting, against globalisation, the GFC and what has transpired in the eight years hence.

2016 was the year of Farage, Hanson and Trump, and the Orange by-election. 2017 could be the year of Marine Le Pen and a possible Frexit, another Far Righter in the Netherlands and a possible Nexit, and an Italian comedian offering a possible Italeave. Germany, too, goes to the polls next year.

But before we get to the potential collapse of the EU, we have Trump.

Trump won the US election on policies of building a wall on the Mexican border, locking up Hillary Clinton, tearing up the TPP, NAFTA and the NATO and Pacific alliances, declaring Beijing a “currency manipulator” and whacking a 45% tariff on Chinese imports, while cutting the US corporate tax rate from 35% to 15%.

“Lock her up” went out the window as early as Trump’s victory speech. The Wall will partly be a fence. The Japanese prime minister left New York happy he could work with a Trump presidency. To date, many of Trump’s campaign “promises” appear to have been watered down and the man does not even take office until late January.

Few believe a full 45% tariff on Chinese exports is even remotely likely. A 15% tax is a very long way down from 35%. There is much faith being placed in Trump’s infrastructure intentions, but even if they do ring true, Rome wasn’t built in a day.

In other words, despite a full sweep of houses for the Republicans – upper lower and White – no one is really sure just what a Trump presidency might bring.

Markets do not like uncertainty.

The Global Economy

Morgan Stanley believes the global recovery is likely to gain more momentum in 2017, driven by faster US growth, stable developed market growth and rebounding emerging market momentum. But the strategists warn that while global growth may become more balanced, material risks emanate from fiscal stimulus, faster Fed rate hikes and a wider globalisation backlash.

The good news is global GDP growth should push back towards its historical average, Morgan Stanley suggests, with faster growth in the US and Japan offsetting a slower Europe, and a rebound for commodity-exporting emerging economies offsetting a gradual slowdown for China.

The bad news is the 2017 outlook is subject to material uncertainty, thanks to a new US administration taking office, key ballots in Europe and the formal start of Brexit.

Commonwealth Bank’s economists agree with Morgan Stanley that the global growth rate should move towards its historical average, rising 3.3% in 2017 and 3.5% in 2018 on their forecasts. This is still short of the average of 3.7%, but well above the 2.7% assumed for 2016.

CBA suggests global economic policies, particularly fiscal policies, will spill over into financial markets next year. Already the UK government has announced a large fiscal stimulus package intended to ward off the negativities implied by Brexit. Meanwhile, Donald Trump is expected to “unleash a very large fiscal stimulus” in the US, CBA notes.

The economists also expect Europe to be the centre of political risk.

Citi’s global strategists note “easier” fiscal policy (stimulus) and a shift away from super-accommodative  monetary policy was already underway ahead of the US election but Trump has “potentially supercharged” this theme for 2017-18.

To gauge some idea of what might transpire, Citi is not alone in making the comparison to the last Washington outsider candidate who pledged to “make America great again”, Republican pin-up boy Ronald Reagan. While the period 1980-85 is not, by Citi’s admission, perfectly comparable, that experience suggests bond yields rise and the US dollar rallies well before fiscal deficits actually begin to widen (spending kicks in).

We have already seen substantial moves in both.

Goldman Sachs is another house assuming a pick-up in global growth next year. But Goldman does not believe stronger US growth will do much for asset classes beyond shift the narrative from “low-flation” and monetary accommodation towards reflation and rising rates. This will not change the fact that the trend growth rate of GDP appears to have fallen for both advanced and emerging economies during the post-GFC period.

Meanwhile, valuation levels for equities and especially bonds remain highly elevated by historical standards, Goldman notes, so expected returns appear to be low across most asset classes. In fixed income, yield is scarce, and in equities, growth is scarce.

Many of the fundamental drivers behind declining trends in developed market GDP growth are likely to remain weak for the foreseeable future, the investment bank believes. One of the sustained headwinds for economic growth in recent years has been the declining growth rate of the working age population. Productivity growth is also low, so has been no offset to the demographic drag.

Asset manager Blackrock is of a similar opinion.

Ageing societies, weak productivity growth and high levels of public debt will, in Blackrock’s view, limit the future pace of economic expansion and the ability for central banks to raise rates. The asset manager believes that from today’s depressed level, the average developed market ten-year bond yield will only rise by 50 basis points over the next five years.

On that basis, Blackrock does not see asset valuation multiples, elevated due to low interest rates, reverting to historical averages over the period. Equities should outperform fixed income over that time.

The United States

Morgan Stanley expects the US dollar to “break out” to the upside. Inflation will rise, and the Fed will be forced to tighten monetary policy more rapidly than assumed pre-Trump. While fiscal stimulus will help growth, it must not be forgotten that higher interest rates mean tighter financial conditions.

Current corporate debt levels are unprecedented outside a recession, Morgan Stanley points out. Stronger earnings will help but higher interest rates will not, and “the Fed could push us to the edge quicker”. To justify current Wall Street valuations, investors need to believe in modest growth, support from central banks and low defaults, and not just for the next year.

Markets anticipate defaults one year in advance, Morgan Stanley notes. Lower defaults in 2017 are “in the price”, rising defaults in 2018 are not.

The investment bank is presently tracking 2016 US growth at 1.6% year on year and has lifted its 2017 forecast to 2.0% and introduced an initial 2018 forecast of 2.0%. These numbers are consistent with Fed forecasting.

CBA had been forecasting 1.7% growth in 2017 but has now lifted that to 2.3% and has introduced a 2018 forecast of 2.6%, attributing the strength to “Trump’s fiscal pump-priming”. The economists expect promised cuts to personal and corporate taxes to be delivered in the first half of 2017, driving a pick-up in consumer spending and business investment.

There are nevertheless a couple of caveats.

Most of the value of the cuts to personal income tax will accrue to high income earners with high savings rates, CBA warns. And there is a risk in the form of the inevitable infrastructure time lag – large infrastructure projects are typically complex and take time to implement.

CBA, too, expects the fiscal boost to the US economy when it is already close to full employment will lead to higher inflation, a stronger US dollar and higher interest rates. The economists expect the Fed to lift its funds rate range by 50 basis points in 2017, to 1.00-1.25%, and another 50 in 2018, to 1.50-1.75%.

Goldman Sachs expects four Fed rate rises between now and end-2017.

These forecasts are in line with Morgan Stanley’s expectations of a “quicker” Fed. Prior to Trump’s election, and backed by constant talk from the Fed of “gradual” tightening and running the US economy “hot”, markets were pencilling in one 25 basis point hike in each of 2016, 2017 and 2018.

Morgan Stanley has retained its pre-Trump US stock market forecast, suggesting a base case 2300 for the S&P500 in twelve months (current level circa 2200). However the strategists now see more upside to their bull case than downside to their bear case. The same 2300 target is reached on a combination of a stronger earnings forecast and a lower PE multiple forecast, which the strategists see as “prudent”.

Morgan Stanley is the first to admit it had a bad year in 2016, following five consecutive years of portfolio outperformance. The strategists were caught out by “huge factor reversals, crowding and unwinds”, despite their overall market call a year ago proving to be quite accurate. Many an investor will have been caught in the same violently revolving door of rapid asset reallocation.

The strategists expect uncertainty and volatility will be a greater threat in 2017 given the Republican Sweep and impact this will clearly have on some policies. Big changes to interest rates, or moves in the US dollar or oil, and a different policy outlook will have a dramatic impact upon which market segments lead and lag the overall index. The strategists gut instinct is to “fade” current optimism about reflation and be prepared for a bit of legislative gridlock, despite the Republican Congressional majority, relative to current consensus banter.

“Fading” is trader-speak for incrementally selling into, or taking profits on, a rising market. Morgan Stanley’s best guess is to stay long the reflation trade until close to Trump’s inauguration and then fade it sometime after that.

China

Trump’s 2016 election shocked the world. In 2017, a five-year change to China’s top leadership team will take place, followed by a five-yearly government reshuffle in 2018. While there is little doubt ultimate leader Xi Jinping will be granted another go-round, the make-up rest of the seven member leadership team is considerably uncertain.

These pending changes should keep Chinese policy-makers risk averse in the meantime, CBA suggests, given no one wants questions raised over his/her running of the world’s second largest economy.

CBA is forecasting 6.8% GDP growth for China in 2017, slightly better than 2016’s expected 6.7%, and above consensus of 6.4%. Growth is then expected to moderate to 6.6% in 2018 as China gradually converges towards slower structural growth rates.

Heading into 2017, the Chinese economy should be boosted by a lower exchange rate and a stronger US economy providing support to export growth, CBA suggests. Import growth should remain moderate due to a cooling housing market and easing consumer spending. A big spike in government expenditure in 2016 should be dialled back in 2017.

Of course there remains one small issue that leads the CBA economists to warn the risk to their 2017 forecasts lay clearly to the downside. If Trump does indeed follow through with threats to name China as a currency manipulator and imposes a 45% tariff on imports from China, it could reduce China’s GDP by a full percentage point in the first year.

But if there is a major disruption to global trade flows, CBA would expect the Chinese government to renew policy easing to support economic growth.

Morgan Stanley’s strategists have lifted their rating on China to Overweight from Underweight.

Europe and the UK

In the wake of Brexit, the European economy has proven to be resilient, Morgan Stanley notes. Morgan Stanley is forecasting 1.4% GDP growth for the eurozone in 2017 and 1.6% in 2018. Slower consumer spending and sluggish investment activity will be offset by stronger net exports, thanks to the weaker euro, and stronger global demand.

The combination of a higher oil price and weaker euro will push European headline inflation materially higher, Morgan Stanley suggests, while core (ex food & energy) inflation will rise more gradually. The ECB will likely extend its bond buying program (QE) for another six months to September 2017 while leaving its cash rate unchanged, before “tapering” purchases thereafter.

CBA’s economists agree the lower euro will provide for stronger European exports, as will a stronger US economy. Some 14% of European exports are destined for the US. But household spending will remain resilient and business investment will further improve, in CBA’s opinion, leading to faster GDP growth than the ECB’s forecasts of 1.6% in each of 2017-18.

Once again, all forecasts come with the caveat of political risk.

CBA does not believe the ECB will increase easing measures in 2017, rather the central bank will begin tapering in the September quarter.

CBA does believe the much lower pound will crimp household spending and business investment in the UK, while improving net exports. Brexit uncertainty will also contribute to restraint. The Bank of England is forecasting a slowing in UK economic growth to 1.4% in 2017 and 1.5% in 2018, but given the UK government’s recently announced fiscal stimulus package, CBA forecasts a more confident 1.6% in both years.

Japan

Morgan Stanley believes stronger global growth in 2017 will be led by the US and Japan, with the weaker yen against the stronger US dollar proving supportive for the latter. The Bank of Japan is forecasting 1.3% GDP growth in 2017 and 0.9% in 2018, which in Japan’s case can be considered “strong”.

CBA agrees the Japanese economy will see strength next year thanks to modest further cuts in the Bank of Japan’s cash rate and further fiscal stimulus from the government. The BoJ will nevertheless be wary of cutting its cash rate too much further into the negative given the effect on pension returns.

Which brings us back to the developed world problem of an ageing population. Nowhere is this as more pronounced than in Japan. CBA’s GDP forecasts for Japan are lower than those of the BoJ – 0.9% in 2017 and 0.6% in 2018 – given an economic recovery cannot be sustained without a larger lift in real wages.

India

And now for the good news.

Back in the noughties, when the commodity super-cycle prevailed, India was invariably mentioned in the same breath as China as the new frontiers of global growth. But in the meantime India has wavered China has completely stolen the spotlight, through economic boom to globally influential slowdown.

The Reserve Bank of India is forecasting 7.9% growth in fiscal year 2017-18, up from 7.6% in 2016-17, in line with the CBA economists’ forecasts. If accurate, India would be the fastest growing economy in the world.

Unlike the developed world, India does not suffer from an ageing population. Solid growth in wages is leading to robust consumer spending, CBA notes, and the introduction of a GST should boost business confidence and investment, albeit low capacity utilisation and funding constraints will provide headwinds.

Morgan Stanley’s strategists have India as their “largest Overweight”. They believe concerns over India’s de-monetisation have been overdone.

While the Indian government could not be accused of being smooth operators when it comes to the recent assault on India’s black market cash economy, the combination, via banknote reissuance and banking sector initiatives, of forcing billions of rupees into the real economy and providing banking facilities for poorer regional areas for the first time should provide a significant boost to the Indian economy, it is generally believed.


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Next Week At A Glance

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.


By Greg Peel

It is quite possible next week’s Fed meeting proves the biggest non-event of a very eventful year. The world has fully priced in a rate hike, so not a lot will happen if the Fed delivers. Of interest will nevertheless be the FOMC’s projections beyond 2017, and Janet Yellen’s first press conference since the election. What will the Trump factor imply for policy ahead?

There’s also quite a bit of US data due next week. Now that a rate hike is assumed, data can be actually assessed on their worth rather than on how the central bank might respond. Next week sees industrial production, inventories, retail sales, inflation, housing sentiment and starts, and the Empire State and Philly Fed activity indices.

Next Friday is a quadruple witching derivatives expiry.

China will release industrial production, retail sales and fixed asset investment numbers.

The Bank of England will hold a policy meeting next week.

In Australia the focus will be on the monthly jobs lottery, along with the NAB business and Westpac consumer confidence surveys.

Australia will also see a “witching” next Thursday as index derivatives expire.

There’s also a late run of AGMs later in the week, most notably those of ANZ Bank ((ANZ)) and National Bank ((NAB)).
 

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Saxo Bank’s Outrageous Predictions

A summary of Saxo Bank's annual report on its ten "outrageous" predictions for 2017. Are they that outrageous?

-Trump sends US yields soaring
-Brexit doesn't happen
-Bitcoin ascends
-EU banks buckle

By Eva Brocklehurst

It is that time of year when Saxo Bank delivers its ten outrageous predictions for 2017. As usual, the selection aims to provoke discussion on what might surprise or shock investors in the year ahead. The predictions are not an official market outlook but are deemed possible events which have the potential to upset consensus views.

2016 will become known as the year where reality managed to surpass even seemingly unlikely calls, such as the UK vote to leave the European Union (Brexit) and the election of Donald Trump as the US president.

Saxo Bank's chief economist, Steen Jakobsen, believes 2017 could be a wake-up call, with a departure from business as usual, both in terms of expansionary policies by central banks and austerity policies from governments which have characterised the period post the global financial crisis. In this spirit the following are offered as the most outrageous predictions for 2017.

China

Number one involves China's GDP. China comprehends it has reached the end of its manufacturing and infrastructure growth phase and, through a massive stimulus of fiscal and monetary policies, opens up capital markets to steer a transition to consumption-led growth. This results in 8% growth in 2017. Euphoria over private consumption-led growth pushes the Shanghai Composite index to double its 2016 levels and surpass 5,000.

US Federal Reserve

As US dollar and interest rates rise, the fiscal policies of President Donald Trump cause the US 10-year bond yields to reach 3%, creating market panic. In this second outrageous prediction , on the verge of disaster, the US Federal Reserve limits 10-year yields to 1.5%, effectively introducing an endless quantitative easing. This provokes a sell-off in global equity and bond markets, leading to the biggest gain for bond prices in seven years.

High-yield Rates

At number three, long-term average default rates for high-yield bonds rise as high as 25%. As the limits of central-bank intervention are reached, governments around the world move towards fiscal stimulus and yield curves dramatically steepen. As trillions of corporate bonds are trashed, the problem is exacerbated by rotation away from bond funds, which widens spreads and makes refinancing of low-grade debt impossible.

No Brexit

The fall-out from Brexit creates a more disciplined EU leadership and a more cooperative stance towards the UK. In the fourth prediction, the EU makes key concessions on immigration and passport rights for the UK-based financial services firms. By the time Article 50 is triggered, Brexit is turned down in favour of the new deal. The UK stays within the EU and the Bank of England raises its rate to 0.5%. The EUR/GBP slumps to 0.7300.

Copper

Number five is about copper. Copper was a clear commodity winner following the US election and in 2017 the market begins to realise the new president will struggle to deliver promised investments and the increased demand expected for copper fails to materialise. President Trump turns up the volume on protectionism as a result and introduces trade barriers, spelling trouble for emerging markets as well as Europe.

Global growth weakens and China's demand for industrial metal slows, as it moves towards more consumption-led growth. Having breached trend line support, copper descends all the way back to 2002 prices of US$2/lb and a wave of speculative selling then sends it down to the 2009 financial crisis low of US$1.25/lb.

Bitcoin

President Trump spending increases the US budget deficit to US$1.2-1.8 trillion and this causes growth and inflation to skyrocket. The Federal Reserve accelerates its rate hike agenda and the US dollar reaches new highs. China starts looking for alternatives to a system dominated by the US dollar and its over-reliance on US monetary policy.

This leads to an increased popularity of currency alternatives and Bitcoin benefits the most, as leading banking systems move to accept Bitcoin as a part alternative to the US dollar. It triples in value to US$2100 from US$700.

US Health Care

Seventh on the list is healthcare expenditure in the US, at around 17% of GDP versus the world average of 10%. An initial relief rally in health care stocks after President Trump's victory quickly fades in 2017, as investors realise the administration will not go easy on health care and lodges sweeping reforms of the unproductive system. The healthcare sector plunges, ending the most spectacular bull market in US equities since the financial crisis.

Mexico and Canada

The market has drastically overestimated President Trump's true intention, or ability to crackdown on trade with Mexico, allowing the beaten down peso to surge. Meanwhile, Canada's higher interest rates initiate a credit crunch in the housing market and the banks buckle, forcing Bank of Canada into quantitative easing and injecting capital into the financial system.

Additionally, the Canadian dollar underperforms as Canadians enjoy far less of the US growth resurgence than they would have had in the past, because of the long-standing decay in the manufacturing base, as a result of globalisation and an excessively strong currency. The CAD/MXN corrects as much as 30% from 2016 highs.

EU Banks

German banks are caught up in the spiral of negative interest rates and flat yield curves and cannot access capital markets. In the EU framework a German bank bail-out inevitably means an EU bank bail-out. This is not a moment too soon for Italian banks which are saddled with non-performing loans and a stagnant local economy. A new guarantee allows the banking system to recapitalise and a European bad debt bank is established to clean up the balance sheet of the eurozone. Italian bank stocks rally more than 100%.

EU Stimulus Bonds

Finally number ten, where faced with success of populist parties in Europe and a dramatic victory for Geert Wilders far-right party in the Netherlands, traditional political parties begin moving away from austerity policies and favour Keynesian policies similar to those launched by US President Roosevelt post the 1929 crisis.

The EU lodges a stimulus package but to avoid dilution resulting from an increase in imports announces the issuance of EU bonds, at first geared towards EUR1 trillion of infrastructure investment, reinforcing the integration of the region and putting capital flows back into the EU.
 

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How Many Fed Hikes Now?

December might be baked in but attention now turns to how Fed policy will respond to Trump’s America.


By Greg Peel

The Fed made its first hike to its funds rate post-GFC in December last year. At that time the committee was anticipating four hikes in 2016. In December last year the US ten-year yield was trading at 2.30%.

The big commodity price plunge and European bank scare of early 2016 conspired to take a March hike off the table. The ten-year had fallen to below 2%. There was much anticipation of a June hike, but that didn’t eventuate either. The yield was then at 1.80%.

Along came Brexit, which saw the yield fall to 1.36% and made a September rate hike touch and go despite ongoing strength in US jobs numbers and signs of inflation finally starting to rise. And so it was, September came and went. But US data continued to improve. If it isn’t going to happen in September, it must surely happen in December, the markets assumed.

The chance of a December hike, as priced by the futures market, rose to over 80% before the US election. The yield had returned to 1.85%. If the data weren’t sufficient on their own, the fact the Fed had talked about rate rises all year and done nothing was enough for most in the market to assume the Fed would simply have to raise in December, or risk losing all credibility.

Then Trump was elected. Trump brought the potential for stronger economic growth fuelled by increased government debt, which in turn suggests rising inflation. Each element on its own is reason for a central bank to raise rates. Not only has the market now moved to assuming a 100% chance of a December hike, the ten-year yield has returned to 2.36%, basically where it was in December 2015.

There was no hike in November, but then no one really expected the Fed to move ahead of the election. The minutes of that meeting were released last night, but given Trump has been elected in the meantime, they were dismissed by Wall Street as being yesterday’s news. Either way, they offered no change to the expectation of a December hike.

For much of 2016 Wall Street feared a Fed rate hike. By the second half the mood turned to one of “please just get it over with”. Now, everyone is well and truly ready for a hike.

So the question is: what happens in 2017?

The US ten-year yield has run from a Brexit low of 1.36% to 2.36%. Yet the Fed is only going to raise by 25 basis points, to (presumably) a range of 0.5%-0.75% from the current 0.25-0.50%. If Wall Street is right, and Trump returns the US to solid, rather than tepid, economic growth, such a low rate seems incongruous by historical measures.

But all along, while pledging a rate rise that is yet to eventuate, the Fed has suggested subsequent policy adjustments will be gradual. Prior to election, the market was pricing in only one hike in 2017 and one in 2018. This is despite the Fed “dots” – projections – suggesting two hikes in 2017 and three in 2018.

Janet Yellen also said, before the election, she wants to allow the US economy to “run hot” for a while, implying the Fed was happy for inflation to pick up. But that was before the election.

The market is now pricing in two hikes in 2017 and two in 2018. This is consistent with the view of the economists at Danske Bank, for one. But Danske also notes, just to cloud the picture further, that the natural rotation of Fed members next year will introduce more known doves to the FOMC than hawks. Under dove Janet Yellen, running hot may mean another year of constant rate rise speculation and constant procrastination from the Fed.

We can only wait and see. Trump is yet to take over the reins. Assuming no resignations from the Fed in the meantime – there has been speculation as to whether Yellen might take her bat and ball and go home given sharp criticism from Trump, pre-election – Fed postings from 2018 will be made by the Trump administration, with Congressional ratification.

We can only shudder at the thought. The Tea Party wants to abolish the Fed and let Congress (politicians) set interest rates.
 

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The Overnight Report: Holiday Spree

By Greg Peel

The Dow closed up 59 points or 0.3% while the S&P gained 0.1% to 2204 and the Nasdaq fell 0.1%.

Let slip the bulls

The SPI Overnight was suggesting only a 7 point gain before the opening bell on the local market yesterday – a fair call despite more records on Wall Street given the ASX200 had rallied 60-odd points the day before. Iron ore had jumped 6% that night but iron ore futures had already rallied during Tuesday so the market was on to it.

But we closed up another 71 points. The chartists had suggested a breach of 5400 would pave the way for a move to 5500 and there seemed some level of self-fulfilment yesterday. As was the case on Tuesday, the local market did not step-jump up yesterday, it started from zero and tracked a straight line up to the close, without as much as a stumble. Momentum was at work.

It seems as if the local market has been in a daze this past couple of weeks as it tries to come to terms with a Trump presidency. There have been many reports in the media warning of just how bad Trump could prove for Australia. But as each passing day indicates Trump’s policy pledges were all about winning the election and not about how he would actually run the country, those initial fears have begun to be tempered.

If it didn’t happen on Tuesday, it happened yesterday – investors suddenly saw Wall Street breaking records and decided Australia was missing the boat. Get in and buy!

Only the healthcare sector missed out on an otherwise market-wide rally yesterday, thanks to the ongoing fallout from Fisher & Paykal Healthcare’s ((FPH)) earnings result. That stock was down 7% and the healthcare sector closed flat. Otherwise, it was green-on-screen.

The resource sectors were again in the frame – materials up 2.0% and energy up 1.3% -- but the fact industrials were up 2.2%, telcos 2.1% and utilities 1.4% indicated investors were moving back into the likes of bond proxy stocks and previous high-PE names that had been trounced over the past month or more. The banks also made their contribution with a 1.1% gain.

Did anyone notice yesterday’s major data release? It seems not.

Construction work done fell 4.9% in the September quarter to be down 11.1% year on year. It was a much softer result than economists were expecting. Private sector work fell 6.6% to be down 36%. The bulk of that fall reflects the ongoing wind-down of resource sector construction. Engineering fell 3.8% to be down 23.2%.

Last year it was all about building work, particularly residential, striking the balance. Building work in general fell 5.7% to now be only 1.4% higher year on year. Within that, residential fell 3.1%. The decline in resource sector construction will soon reach its nadir, but now we see the beginning of the cooling of the housing market. The Australian economy needs a new hero.

Within those companies most impacted over the last few years by the mining downturn – engineers & contractors – a scramble has been on to diversify into public infrastructure and away from the mining and oil & gas sectors in order to re-establish themselves. In the September quarter, public construction rose by only 1.4% but it is 15.7% higher year on year. Economists estimate the overall construction number for the quarter will shave 0.4 percentage points off GDP. As housing cools, public sector spending will need to take the baton.

Happy Thanksgiving

The healthcare sector was also a drag on Wall Street last night. Test results showed that Eli Lilly’s prospective Alzheimer’s drug failed to deliver. That stock fell 10% and weighed generally on biotechs, sending the Nasdaq down 0.1% following two record-breaking sessions.

It looked for most of the session that the S&P500 would also ease back after its record thirteen-day winning streak, but the broad market index just managed to fall over the line at the death. The Dow, on the other hand, powered on.

The Trump theme continues to underscore for many of the big caps in the Dow Industrials and very much so in the Dow Transports. But there was more to be positive about last night.

Deer & Co shares jumped 11% following that company’s earnings report. Deere is not a Dow stock but peer Caterpillar is. The banks continued on their merry way last night and because of the peculiarities of the arcane price-average, recent addition Goldman Sachs is very influential because it is a US$200-plus per share stock.

US durable goods orders surged 4.8% in October when 3.3% was expected. It mostly came down to lumpy aircraft orders, but ex-transport the result was still a 1% gain.

The minutes of the November Fed meeting were released last night but no one paid any attention, given they are pre-Trump. The indications are nevertheless a rate rise next month is baked in, but everyone knows that.

There would have been no surprise had Wall Street eased off last night as traders squared up ahead of what is effectively a four-day holiday. But that was not the case. We’ll need to see what happens next week after everyone’s had a rest.

Commodities

Iron ore is up another US$1.10 at US$74.90/t. At what point will the Chinese government step in with more dramatic measures to curb speculation?

And not just in the bulks, but in base metals too. Aluminium and lead rose another 1% last night, copper and nickel 2% and zinc 3%.

These moves came, yet again, despite a stronger greenback. After one little dip, the US dollar index is back up 0.6% at 101.64.

Alas, the death knell sounded for gold. It fell US$24.60 to US$1187.10/oz, accelerating once the 1200 mark was breached.

The oils were little moved last night.

The Aussie is down 0.2% at US$0.7386. On a combination of US dollar strength and the weakness in yesterday’s Australian data, we might expect a bigger drop. But look at those commodity prices.

Today

The SPI Overnight closed down one point.

There’s no holiday in Australia tomorrow, but with Wall Street closed, it may be a case of looking to square up a bit downunder, particularly after a 130 point rally over two sessions.

Today brings September quarter capital expenditure numbers.

It is also a very big day on the AGM calendar, with highlights including South32 ((S32)) and Woolworths ((WOW)).
 

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article 3 months old

The Overnight Report: Dow 19,000

By Greg Peel

The Dow closed up 67 points or 0.4% at 19,023 while the S&P rose 0.2% to 2202 and the Nasdaq gained 0.3%.

Buy Everything

Surging commodity prices were the major trigger but new all-time highs on Wall Street also seemed to spur investors into diving back into the Australian stock market as a whole yesterday, given no sector finished in the red in a 1.2% rally for the ASX200. Rotation of any sort was not apparent, although not every sector performed equally.

Materials (up 2.8%) and energy (up 2.6%) led the charge on stronger base metal and oil prices, despite a weak overnight session for iron ore, and helped by little counter-movement in gold. Iron ore futures went the other way and traded “limit up” in the session, negating that offset. In contrast to trading over the past couple of months, the next best sector was utilities, up 2.1%.

It has been typical in recent times for resources and other cyclicals to trade inversely to yield stocks and defensives. Yesterday was different; seemingly more of a case of buying anything that looked sufficiently cheap. Not joining the party were the banks and telcos, up only 0.3% each.

Telstra ((TLS)) has been a volatile stock of late – not what you’d normally associate with a supposedly defensive telco. It seems talk of an NBN-related “earnings gap” ahead has investors thinking twice. And the lingering possibility of the banks having to raise new capital to meet new regulations, or at the least cut their dividends, may also have investors shying away from that sector.

Yesterday’s rally was not a step-jump but a classic case of moving steadily upward as the day progressed. This suggests “real” buying. In sights was the technical level of 5400 for the index which was surpassed late morning, sparking some brief profit-taking, but once the rally resumed it fed on itself.

If the index holds over 5400, chartists suggest then 5500 is in play.

Blue Sky

Donald Trump must be starting to think he’s a bit of a hero, if he didn’t already. The S&P500 has now posted a thirteen-day winning streak since Trump’s victory speech, to the tune of almost 3%. Nixon managed to spark a similar response, but Trump is still well behind Republican pin-up boy Ronny Ray Guns, whose election was worth over 8% in the same period.

The Dow has closed over 19,000 for the first time in history. The S&P has closed over 2200 for the first time in history. The Nasdaq and Russell small cap indices also hit new all-time highs last night, marking the second consecutive session of all four doing so – a feat not seen since 1998. The thirteen-day day winning streak for the S&P is the first since 1996.

Across Wall Street all talk is of just how far this rally can run on election promises (that are already being broken – “lock her up” is now off the table) which will take time to implement. Surely the honeymoon must fade at some point.  Tonight in the US is all about trains, planes and automobiles. A mass exodus will begin from lunch time. A good day to take profits ahead of the Thanksgiving holiday?

Commodities

Recent volatility in bulks and base metal prices has had a lot to do with the Chinese government increasing margin requirements to curb rampant speculation, offsetting Trump euphoria. We’ve seen some sharp dips in iron ore and coal prices lately as a result. But is Beijing winning?

Iron ore is up US$4.00 or 5.7% at US$73.80/t. Thermal coal is up 6.2%.

There were some very big moves up for base metals on Monday night, with aluminium a smaller mover. Last night aluminium jumped 2% while copper, lead and nickel all added a further 1% and nickel fell 1%, having jumped over 5% in the prior session.

West Texas crude has now rolled into the January delivery contract and last night it fell US17c to US$48.07/bbl after Monday night’s big move.

The US dollar didn’t much come into play last night, ticking up less than 0.1% to 101.07.

Gold is flat at US$1211.70/oz.

The Aussie is up 0.5% at US$0.7399 despite the steady greenback, driven by commodity prices strength and, presumably, all this sudden talk of the next move in Australian interest rates being up. There are plenty of economists holding the opposite view.

Today

The SPI Overnight closed up 9 points.

Locally we’ll see September quarter construction work done numbers today.

Japanese markets are closed.

Wall Street will see a big dump of data tonight, including the minutes of the November Fed meeting, before the evacuation begins.

Programmed Maintenance ((PRG)) will release its earnings report today while the centres of attention in another round of AGMs will likely be Estia Health ((EHE)), following its torrid few months, and one of the most volatile stocks on the market at present, lithium producer Orocobre ((ORE)).

Rudi will appear on Sky Business today, 12.30-2.30pm, instead of his usual Thursday appearance.
 

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