Risks Drive Stocks, The Mexican Peso And The Aussie Dollar Higher

Originally published by AxiTrader h2 Quick Recap/h2

Relief is second only to fear when it comes to generating market moves.

And traders were relieved on Monday in Asia that FBI director James Comey said he’d reverted to his July finding that Hillary Clinton has no case to answer. That relief continued in European and American trading overnight, such that stocks are up around 2% in the US, a little less in Europe, and more than 3% in Mexico.

The US Dollar is stronger against the Yen, Euro and Pound – but not a lot more than where forex traders initially drove prices to almost 24 hours ago. Gold is down at $1280 and US 10 year Treasuries are up at 1.83% as the odds of a Fed hike – or at least the market pricing – increased again in the wake of the news and risk on sentiment.

And that risk on sentiment has driven the Aussie dollar higher – its above 77 cents. Just, but still there.

• The flow of polls overnight have Hillary Clinton winning the election in a clearer manner than previous polls after the amazing intervention from FBI Director Comey. It’s not for me to editorialise on his motives or drivers but from a market perspective he certainly introduced a lot of volatility into trading. But the fact that the market (as measured by the S&P 500 and US dollar) sank on the initial news that Comey was reopening the Clinton emails question but leapt on a relief rally yesterday tells you the market is clearly voting for Clinton.

• That means there is some risk – not inconsiderable – if Trump Triumphs. This price action, what we have experienced in the first day of this week, is almost an exact replica of the pre-Brexit trade in markets. Recall sterling (GBP/USD) traded to 1.50 as traders thought the stay vote would win. And then subsequently collapsed. Now the US election is not Brexit. And the electoral college structure makes it difficult for Donald Trump to find a path to the White House – but he’s probably still a non-trivial 30%+ chance of victory. No wonder Bloomberg reports funds like Janus and Old Mutual are keeping their hedges on.

• So we are likely to have a lively days trade in Asia tomorrow as the results start to filter out regardless of who wins.

• Former Fed Chairman Alan Greenspan thinks bonds are on their way back to 5% (NOT A TYPO) as inflation takes hold again in the US. “If the early stages of inflation, which are now developing, would take hold, you could get -- fairly soon -- a fairly major shift away from these extraordinarily low yields on 10-year notes, for example,” Greenspan said in an interview on Bloomberg Television on Monday. “I think up in the area of 3 to 4, or 5 percent, eventually. That’s what it’s been historically.” – That would really and seriously crimp stock market valuations.

• China sacked its Finance Minister yesterday replacing Lou Jiwei with Xiao Jie who has worked at the ministry for 20 years and used to be an adviser to Premier Li Keqiang. President Xi might now be core but this reinforces Li remains just as important at the top of Chinese government.

• The Bank of Italy said on Monday that the ECB is considering extending – not tapering – its QE program past the March 2017 end date. But Reuters reports the ECB’s Lautenschlaeger is sceptical of further easing.

• On Brexit a couple of interesting things from overnight. UK house prices rose in October according to the Halifax index and a Reuters survey showed that Sterling is at the ideal deal level according to respondents to help the economy adjust to current uncertainties about the Brexit process. I know I say it all the time but an outwardly facing economy can benefit from a big fall in its exchange rate – again I offer Australia as an example

• The S&P/ASX 200 rallied 70 points, 1.35% yesterday in what was a broad based move higher. Except for the gold miners and a few others who reacted to golds fall to around $1292 in our time zone yesterday. Naturally the gold miners might find it tough again today given the yellow metal is lower again but overall the market is expected to open higher if futures traders are any guide.

• The December SPI 200 contract is up another 13 points overnight and on the charts it looks like the markets wants to retest the bottom of the uptrend it broke out of recently. 5301 is the target – but as readers know I’m flat until after the election. On the physical market 5300.5300 is the level that my system is targeting.

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• The release of the NAB’s business survey today may fade into the election background but that does not mean it isn’t still an important pointer to where business is seeing the economy now and in the months ahead. Recently business conditions and sentiment have dipped a little in this survey but still stayed at or above their long run average. Of most interest to me however are the sub indexes which show trading, profitability and employment indexes.