US Dollar shows cracks as recount risks rise while Black Friday distracts stock traders
I feel like we're in the middle of a magic trick where a bear is being rolled out on the stage while the audience is being distracted by something shiny.
Stock markets their post-election honeymoon and Thanksgiving break. US index futures are up 0.2% building on a light and moderately positive day in Canada and overseas Thursday and flat markets in Europe this morning. Copper is up another 2.1% today while crude oil is down 1.0%. Overall trading is expected to be quiet again today with the big players at home for Thanksgiving or out taking advantage of Black Friday sales.
We have had some incredible moves since Donald Trump's surprise election win. Trump trading has sent the US Dollar, US stock markets and base metals led by Dr. Copper soaring while defensive havens like bonds, gold and JPY have plunged along with non-US currencies like EUR and CAD.
The big Trump sparked moves have continued this week even though technical indicators have been flashing yellow indicating moves that have gone too far too quick are running the increasing risk of a big correction like the one that happened in copper two weeks ago. Fed Funds pricing in a 100% chance of a December rate hike indicate complacency has really set in and it wouldn't take much to spark a significant course reversal.
I have been thinking that something has to give between stocks and the US Dollar and it appears that the potential spark for a correction could come today although traders may not really notice it until next week.
Press reports indicate that Green Party Candidate Jill Stein has raised several million dollars this week to launch recount bids in key Midwest states that Donald Trump won by a close margin.
The excuse for the recounts is apparently related to questions over whether electronic voting machines in rural counties which voted for Trump had been hacked although this wasn't brought up before the vote. The Democrats having made such a big fuss over the election being fair and respecting the result means they can't launch a challenge so it looks like the Green Party is acting on their behalf.
The deadlines to demand recounts are coming up and Stein is expected for file in Wisconsin today (while markets are distracted with Thanksgiving and Black Friday), Pennsylvania on Monday and Michigan by Wednesday.
While it seems unlikely that the election result will be overturned, this could be enough to really upset the apple cart for markets that have become overextended and overcomplacent. The recount challenge launched by Al Gore and the Democrats after the 2000 election sent the Dow down over 5% at the time.
Recounts could upset and slow the transition process, increase political risk in the US, cause the Fed to reconsider a December rate hike (even a shift from 100% to 90% could impact trading) and spark significant trading corrections. Most importantly, regardless of what happens it shows that even though the Republicans control the White House and Congress, the opposition isn’t going to roll over and let the Republicans do whatever they want, they will use any means they can find to oppose initiatives, to slow down the process and to water down measures wherever possible. The markets have been acting like Trump is going to have his way on everything and the realization that isn’t the case could also act as the spark for a correction.
So far it doesn't look like markets have been taking this risk seriously so it may become a bigger story next week, but some cracks have already started to appear in the mighty US Dollar's armour. Gold, EUR and JPY have all started to rebound trading up from their overnight lows with CAD and AUD posting smaller gains. Today could be the calm before the storm which savvy traders may want to spend battening down the hatches and boarding up the windows.
There have been no major corporate announcements this morning.
UK GDP update 2.3% as expected
UK CBI retailer sales 26 vs street 12 vs previous 21
UK CBI distributor sales 34 vs street 11 vs previous 26
NZ Trade Balance ($846M) vs street ($971M)
Japan consumer prices 0.1% vs street 0.0% vs previous (0.5%)
Japan core CPI 0.2% vs street 0.1%
Singapore industrial production 1.2% vs street 1.0% vs previous 6.7%
Upcoming significant economic announcements include:
TBA Black Friday Sales Reports
8:30 am EST US advance goods trade bal street ($59.0B)
9:45 am EST US flash service PMI street 54.8
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