In a scenario that may play out in the local market today, US equity markets displayed mixed reactions to the Trump themes of fiscal stimulus; inflation; de regulation and protectionism.

Overall earnings valuations on US markets are relatively “full”, especially given rising bond yields. Market gains are more likely to come from upgraded earnings outlooks than valuation expansion and here the picture is mixed. Banks, for example, may benefit from deregulation while exporters may feel the pinch of a stronger $US and are exposed to the risk of potential trade wars under Trump administration policies.  

The firm open by the ASX 200 this morning masks mixed reactions to the Trump themes.  The potential for a significant increase in US demand is a game changer for commodities like copper and is fuelling the rally in Australian mining stocks. Around a third of copper demand comes from construction and the US is the second largest consumer behind China.  The possibility of a massive increase in US infrastructure projects over coming years will have a big impact on a market where reducing grades and delays in a number of major mining projects have tightened supply projections.

However, the story is not so rosy for the utilities and real estate sectors this morning. The last 24 hours have seen another sharp jump in bond yields which is putting pressure on stocks in these sectors.