More Record Highs For US Stocks Even As Bonds And The US Dollar Rise

Originally published by AxiTrader

Quick Recap

The big four stock indexes in the US closed at record highs again Friday as investors continue to bathe in the expectation a Trump presidency will make stocks a great investment. Certainly there is a lot of expectation in the prices, and no doubt there has been, and will continue to be, a lot of pull forward of price appreciation from next year.

But for the now the rally continues – even as bonds sell off and expectations of a rate rise at this December’s FOMC meeting locked and loaded.

Elsewhere the US dollar is showing signs of fatigue in it’s rally after the post-Trump surge. Oil is down as the Saudi’s say OPEC needs to get it’s house in order and agree a deal before it will bother to turn up to the OPEC/non-OPEC deal prior to Wednesday’s meeting.

Gold is still struggling, copper and other base metals are doing well and the Aussie dollar is at 0.7437.

What You Need To Know

International

• Stocks in the US ended at record highs on Friday with the S&P 500, Dow, Nasdaq and Russell 2000 all up a little less than 0.4%. Stocks in Europe were higher as well.

• But the continued ebullience and expectation of a the impact of a Trump presidency drove U.S. 10-Yearup to 2.4% at one point before closing at 2.37%. Like the US dollar bonds are showing signs of waning momentum. But with non-farms on Friday and Q3 GDP tomorrow night bond traders have plenty of economic data to keep an eye on.

• The big question for the stock bulls and the bond bears right here and now is how much expectation have they built into prices. Too much? Or is there plenty more to come? It’s easy to say both markets, and the dollar, are stretched in the immediate term. But there appears to be solid structural shifts in capital allocation which is behind these moves. Santa Claus rally?

• China’s industrial profits were released over the weekend and were up 8.6% in the period Jan-October. “Although October industrial profit growth picked up, the structure of growth was not ideal," NBS official He Ping said in a statement accompanying the data. He added “Profits in traditional raw material production increased relatively quickly...while high technology and equipment manufacturing profit growth slowed”.

• Speaking of China the Shanghai rally in metals continued again Friday AND the PBOC has warned about traders, investors, and banks sneaking Yuan out of the country via the Shanghai free trade zone. Reuters quoted an unnamed official who said “The central bank has urged lenders to strengthen due diligence to prevent capital outflows disguised as outbound investment.”

• It’s a really big week ahead with OPEC, the Italian referendum, US GDP, non-farms, and now this recount in 3 states where Donald Trump’s cumulative victory was 100000 votes. Something to watch as it technically means the election isn’t over yet if the recount happens. Hillary Clinton’s team is taking part so expect some vitriol to fly from the Trump transition team.

Australia

• It was the S&P/ASX 200 best week, and best close, since June with the 200 index finishing the week at 5507. On Friday night December Futures were largely unchanged giving traders no real lead on direction when they kick off this morning. But in no small part that’s because of the strength of the rally across the week which delivered a 149 point rally (2.8%) from the previous Friday’s close.

• Last week’s close above 5507 is a positive sign. But as you can see from the weekly chart below the high Friday was right on an old down trend line from the 6000 high. 5522 is the level the chartists will be watching closely.

• Looking at the week ahead there are two really important pieces of data to be released in Australia. First is CapEx which, after last week’s construction work done, is going to be watched closely. Already economists believe that the construction data leaves a big hole in the Q3 GDP calculations. So we’ll see what impact actual investment might have had and then of course the 4th read on investment prospects.

• Also out is October retail sales for Australia. A rise of 0.4% is expected Thursday and if the pundits are right that can go some way to showing that the flat spot the economy appeared to go through in Q3 has passed. Of course low retail sales would undermine that assumption, the RBA’s confidence in the economy, and most likely unwind some of the local bond rate rises and Aussie dollar’s recovery.

Forex

• The structural move that is driving the US dollar’s rally looks set to continue even though the shorter term price action looks over stretched and the USDJPY rate might finally be signalling a hiatus.

• But trying to pick this top, even though it could offer big rewards if timed right, remains fraught given that it is clear there are large portfolio flows – based in changed outlooks and relativities between the US and other nations - behind the price move in recent weeks.

• As we open Asia things in Forex land a very quiet to kick the week off. The AUDUSD is still above 74 cents at 0.7422, USDJPY is at 113.02, EUR/USD still below 106 at 105.97, and GBP/USD is at 1.2471.

• The CAD, which was the big loser among the most traded currencies Friday after oil’s fall in US trade, sits at 1.3516.

• Naturally if OPEC does get a deal done this trendline – which is defining the current uptrend – is likely to come under pressure and USDCAD could shoot sharply lower. And of course OPEC may not do a deal at all. USDCAD will be watching closely.

Commodities

• Crude Oil fell 4% back to $46 in WTI terms Friday after new broke that the Saudi’s were not going to attend today’s meeting between OPEC and non-OPEC numbers in Vienna. Reuters reports that a source told them “There is an official letter from (Saudi Arabia) saying (it is) not attending the meeting because the ministers should agree to the cut and then present the agreement to non-OPEC countries”.

• Reuters also reported a Gulf source familiar with Saudi oil thinking said on Friday “We have to solve our problems as OPEC first. We have not achieved an agreement within OPEC".

• On Saturday after a meeting with his Algerian counterpart Iran’s oil minister, Bijan Zanganeh, said “the general trend and public statements suggest that OPEC can reach a viable agreement for its production and market management.”

• But traders aren’t convinced. It looks like OPEC is about to snatch defeat from the doors of victory. I’m still betting that the cartel does indeed get a deal done at Wednesday night’s meeting. IT’s a much less strongly held view given the seeming lack of consensus so close to the actual meeting. But for me the prospects of this deal getting done remain anchored in the need to improve the fiscal situation and budget balances of OPEC, and non-OPEC, members alike.

• If no deal is done $42.50 would be the first stop but the chances of a run below $40 would be high

• Gold remains under pressure as higher rates, overall positive risk appetite and technical which look awful still weigh. It’s back inside the previous downtrend now and the chances of a run to $1050 are increasing. Here’s the weekly chart

• Copper was stronger again finishing the week at $2.66 a pound. In what has been a rolling rally in metals, both in Shanghai and beyond, what’s stood out recently is the number of metals where traders are suddenly talking about inventories and tighter markets as we head toward 2017. Interesting how the narrative can change.

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

• Australia - Nil
• New Zealand - Nil
• China - Nil
• Japan - Retail Trade s.a (MoM) (Oct), Retail Trade (YoY) (Oct), Large Retailer's Sales (Oct) (10.50am)
• Germany - Nil
• EU - Private loans (YoY) (Oct), M3 Money Supply (3m) (Oct), M3 Money Supply (YoY) (Oct) (8pm); EU Financial Stability Review, Business Climate (Nov), Industrial Confidence (Nov), Services Sentiment (Nov), Consumer Confidence (Nov), Economic Sentiment Indicator (Nov) (9pm)
• UK - Nil
• Canada - Nil
• US - 3-Month Bill Auction, 6-Month Bill Auction (3.30pm)

Have a great day's trading