After the Fed, what’s next for markets and trading?
Today started off with a lot of follow-through trading from the FOMC meeting with the USD steamrolling over everything in its path sending gold, JPY, EUR and GBP sharply lower and causing major breakdowns. In stock markets, financials continued to rally on anticipation that Fed rate hikes mean banks could finally start making money from lending again. Meanwhile, positive manufacturing reports from the northeast and very strong housing data indicated that the post-election honey moon has spread far beyond the markets into the broader economy.
I think what has been happening is that a lot of business had put off decision-making until after the election and a lot of investors had been sitting on cash through the election campaign. The decisive result broke a logjam and since then, business have been getting on with decisions and institutions have been plowing cash into the market ahead of year end not wanting to show a huge stockpile of cash when US indices are up over 10%.
The Dow took another run at the 20,000 level today and once again fell short finishing off its highs but above where it started. It appears that as that big round number approaches momentum traders have been taking profits. Similarly, the USD backed off a bit in the afternoon releasing its stranglehold on other currencies at least for a little while.
It remains to be seen how long this rally can last. Although we may see intraday swings now and again, traders appear to be inclined to keep the markets up through the holidays maybe into early 2017. I suspect, however, that the earnings season that starts mid-January could be rough with the impact of the higher USD likely to inspire another round of whining and guidance cuts from Corporate America.
Heading into the weekend, there are still a number of announcements but they are mainly second tier in nature such as consumer confidence, housing and trade data from a number of countries. The big question facing the markets is whether traders are looking to take profits or add to positions ahead of the weekend.
On Monday the US electoral college is scheduled to vote to complete the election process. US electors have apparently been inundated with requests and petitions from celebrities and individual Democrats to deny Donald Trump the presidency by breaking their oaths, rejecting the will of the people they have been appointed to represent and voting for someone else. They may find 2 or 3 faithless electors but finding the 30 or so votes needed to overturn the election looks very slim at this point. Still, the vote could spark another round of trading either from relief on confirmation of the results or shock if there is a surprise rejection.
There have been no major announcements after the US close today.
Significant announcements released overnight include:
UK Bank of England decision 0.25% and £435B QE no change as expected
Switzerland SNB interest rate (0.25%) to (1.25%) no change as expected
Switzerland SNB deposit rate (0.75%) no change as expected
Norway Norges Bank interest rate 0.50% no change as expected
US consumer prices 1.7% as expected
US core CPI 2.1% vs street 2.2%
US real average weekly earnings 0.5% vs previous 0.9%
US jobless claims 254K vs street 255K
US Empire manufacturing 9.0 vs street 4.0
US Philadelphia Fed 21.5 vs street 9.1 vs previous 7.6
Canada manufacturing sales (0.8%) vs street 0.4%
US flash manufacturing PMI 54.2 vs street 54.5
US natural gas (147 BCF) vs street (124 BCF)
UK retail sales 5.9% as expected
UK retail ex auto 6.6% vs street 6.0%
France flash manufacturing PMI 53.5 vs street 51.8
France flash service PMI 52.6 vs street 51.9
Germany flash manufacturing PMI 55.5 vs street 54.5
Germany flash service PMI 53.8 vs street 54.9
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
11:00 am AEDT NZ ANZ consumer confidence previous 127.2
11:30 am AEDT Singapore exports street (2.7%)
11:30 am AEDT Singapore electronic exports previous (6.0%)
10:00 am GMT Eurozone trade balance street €29.0B
10:00 am GMT Eurozone consumer prices street 0.6%
10:00 am GMT Eurozone core CPI street 0.8%
11:00 am GMT UK CBI orders street (5)
11:00 am GMT UK CBI selling prices street 20
8:30 am EST US housing starts street 1,230K
8:30 am EST US building permits street 1,240K
12:30 pm EST FOMC Lacker speaking