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Markets rotate to value

International markets showed signs of pausing to wait on evidence of policy specifics before extending moves in the direction of the “Trump themes” of fiscal stimulus and inflation.

This market pause is playing out in a couple of ways. The first is a pause in some of the markets that have run hard recently. The bond sell- off steadied, with US 10 years bonds showing signs of holding the  trend line support that dates back to 2013. Copper and iron ore which have had what look like “blowout” rallies are showing signs or retracing.

The second feature of international trading last night was that traders appear to be searching for value, rotating back into some of the recently beaten up sectors. The best performing sectors in the S&P 500 last night were Energy; Utilities and Info Tech. This theme may be repeated locally with mining stocks likely to open lower and other sectors rallying.

Despite signs of a pause in bonds and base metals, the US Dollar held firm in international trading.  This was assisted by a second month of strong retail sales confirming market expectations that the Fed will lift its rate in December. The US Dollar Index is sitting around a critical resistance level, testing the highs of March and December 2015. What it does from here will be significant.

Oil price had been sold off to levels where it was vulnerable to speculation that Opec might actually achieve a production cut and this was reflected in last night’s rally. This should also see support for energy stocks on ASX today. 


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