Markets Got Trumped Overnight As Traders Realised He Just Might Win

Originally published by AxiTrader h2 Quick Recap/h2

Stocks are lower across the board, the US Dollar is under pressure against the Yen, Euro and Swissie, and the US 2-10 bond curve steepened. It's all because markets are now starting to recognise that Republican candidate Donald Trump might win the US presidential election.

But I'm not going to over hype last night's moves because the price action is just a little aperitif of what we’ll see if the market really thinks Trump can win, or if he does. But it is instructive of the impact we can see when complacency morphs to recognition of risk.

The next step, the dangerous one is the fear of the risk that can cause investors and traders to rush for the exits.

• So, the big news is that markets look like they are taking the chance of a Trump presidency more seriously. Why? Because they have no choice. An ABC News/Washington post tracking poll has put Trump in the lead by a point. As he tweeted himself that’s a huge gain in the last couple of weeks. He is a real chance folks...he can win, we have seen the impact of disaffected voters all around the world in elections for the last couple of years. As I wrote at business insider last week “inequality, its sources, and how deal with it is one the strongest socio-political forces and economic debates on the planet right now”. And its fuelling Trump.

• So the wash up is that US stocks are a little lower, crucially the S&P 500 is at its lowest level since July and looking awful on the charts. The US dollar is getting hammered across the board but not against the risk currencies like the Aussie, the CAD and the Kiwi, and certainly not against the Mexican Peso. Which means my election fear barometer – the MXN/JPY has collapsed as well.

• And naturally the CBOE Volatility Index leapt 14.48% to 19.53. But the fear, as measured by the VIX is only back to a couple of month highs and not even near the Brexit levels – so things could get really ugly.

• The bond market version of fear is also elevated with the US 2/10 spread at its widest levels since Brexit.
  

h2 Looking at all the other events last night/h2

• US manufacturing looks pretty solid with the Markit manufacturing PMI up to 53.4 from 51.5 last while the ISM manufacturing PMI printed a more sedate 51.9 from 51.5. Still positive though.

• Chinese data yesterday was universally positive - both the official and unofficial PMI’s were better than expected yesterday. The official NBS manufacturing PMI rose to 51.2 from 50.5 while the NBS non-manufacturing PMI rose to 54.0 from 53.7 in September. The unofficial Caixin manufacturing PMI rose to 51.2 from 50.1

• The BoJ left policy unchanged yesterday but pushed out the timing of the bank’s expectation when inflation will get back to it’s target. Interestingly reading the statement I was left with the feeling they don’t actually think it will get back for a very long time.

• Reuters is reporting that the German panel of experts who put out guesstimates for growth are upgrading 2016 to 1.9% but down to 1.3% in 2017.

• A set of Reuters polls show strategists expect the Yuan to weaken to the 2008 low and the US dollar to strengthen in the year ahead

h3 Australia/h3

• The rest of the world might be coming to the same conclusion that Australian stock market traders came to last week. Get out of dodge. Yesterday we had another shocker losing 0.5% to take the market to a close of 5290, just above that important 5280 region. But this morning the SPI futures are down 46 points with about an hour and 20 minutes to go before he close of US trade.

• That opens the way for the full round trip to 5150/80 I talked about on Monday for the physical. In overseas trade the miners and banks aren’t too hot so the SPI might be right for a change.

• For SPI traders the inability to break back inside the uptrend with Monday’s aborted rally was an ominous sign in itself but the chart this morning looks awful. 5150 seems likely and if that breaks a huge fall could occur. Here’s the chart

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• I guess part of the selling yesterday could be blamed on the RBA which seemed to not only take rate cuts off the table but do so with the aggressive inclusion of a paragraph in governor Lowe’s statement highlighting the RBA is comfortable with the forecasts it made 3 month’s ago about the track of the Australian economy. That’s a poke in the eye to the constant stream of commentators who are constantly trying to say the RBA has lost it.

• But is is also a clear signal that the RBA thinks the Australian economy is doing fine – No more rate cuts as I wrote here yesterday afternoon.

h3 Forex/h3

• The US dollar is under pressure as the source of risk to global markets now that traders have recognised there is a greater chance of a Trump presidency. As I’ve written many times this is not a political statement from me but rather simply a recognition that traders are nervous about the uncertainty that a Trump presidency could bring and are doing what traders and investors do when uncertainty rises – taking money off the table. That’s why stocks are down, the US bond curve is steepening, and its why the US dollar – after a cracking run I must say – is being sold against the Euro and Yen.

• As I’ve been saying in my videos and writing here that means the US dollars top is in and with the US Dollar Index now at 97.726 the next key support is 97.55 which is the 38.2% fibo level and then 97.11 which is my slow moving average. Here’s the chart:

• The Euro has leapt higher as discussed in my videos this week and is at 1.1060, while the USD/JPY is not only under 105 but is back at 103.96, below 104. Both moves fit the technical and the discussion we’ve been having this week. But both moves also have legs if markets concerns about the election result intensifies.

• Yesterday I argued that the JPY/MXN is the one to watch to see just how badly markets are fearing the election of Trump. Overnight MXNJPY fell 2.55% and is at 5.41 this morning. That’s the one I’ll continue to watch as my election barometer. The chart says it all:

• Turning for home and the Australian dollar found plenty of support after the RBA’s meeting and statement yesterday. But it was again unable to push up and through trendline resistance making a high of 0.7688 overnight. Right on the line. A risk off period where stocks are under pressure, bond curves are steepening, and uncertainty is not one that is usually supportive of the Australian dollar. So even though the Aussie is still higher this morning chartists will be eyeing the wedge pattern which suggests an eventual break down.

h3 Commodities/h3

• Oil is under pressure again as traders continue to worry about the inability of OPEC to deal. But the weaker US dollar saved it from the lows of the day and it is only mildly lower with Crude Oil at $46.83 and Brent Oil at $48.29. Sentiment is certainly a lot more sour than it was and the support I’ve been talking about near $46 in WTI terms, which was tested last night, needs to hold if crude isn’t to cascade even further.

• I always respect lines and levels unless or until they break. Here’s the WTI chart.

• Gold has rocketed higher as fear has risen. It’s eclipsed the $1285 level we talked about the other day and at $1290 looks set to test the $1295 next target. It could go much higher is traders get really worried and risk goes off

• Copper is breaking out after a really strong surge. The latest catalyst was yesterday’s positive Chinese data. It’s broken through the top of an 8 month down trend line.

h2 Today's key data and events (all times AEDT) /h2

• Australia - Building Permits (YoY) (Sep), Building Permits (MoM) (Sep) (11.30am)
• New Zealand - Unemployment Rate (Q3), Employment Change (Q3), Participation Rate (Q3) (8.45am); RBNZ Inflation Expectations (YoY) (Q3) (1pm); RBNZ Inflation Expectations (YoY) (Q3) (1pm)
• China - Nil
• Japan - Monetary Base (YoY) (Oct) (10.50am); Consumer Confidence Index (Oct) (4pm)
• Germany - Unemployment Rate s.a. (Oct), Unemployment Change (Oct), Markit Manufacturing PMI (Oct) (7.55pm)
• EU - Non-monetary policy's ECB meeting (7pm); Markit Manufacturing PMI (Oct) (8pm)
• UK - BRC Shop Price Index (MoM) (Oct) (11.01am); PMI Construction (Oct) (8.30pm)
• Canada - Nil
• US - MBA Mortgage Applications (Oct 28) (10pm); ADP Employment Change (Oct) (11.15pm); ISM New York index (Oct) (12.45am); EIA Crude Oil Stocks change (Oct 28) (1.30am); Fed's Monetary Policy Statement, Fed Interest Rate Decision (5am)

Have a great day's trading

Written By: Axi