he risk of investors putting the cart before the horse has started to impact trading in US stocks today. Traders have been bidding up US stocks and USD on speculation that the incoming Trump administration is planning to increase infrastructure spending and boost inflation, encouraging the Fed to raise interest rates.
The only problem is that the new government won’t be sworn in for several months and the impact of new spending programs, regulation changes and tax cuts may not have an effect on earnings for some time afterward. While the benefits to earnings may not appear for months or even a year out, the negative impact of a higher US Dollar (reduced exports, fewer visitors to the US, reduced overseas earnings) may be more immediate. The potential for this situation to create a short-term slump in earnings has been dragging on US stocks today and could become a key driver for trading over the next 6-12 months. It’s not unusual for stocks to decline in the first year or two of a new president’s term while policy changes are announced and implemented.
Today’s earnings reports were mixed with Target beating the street and Lowe’s falling way short of expectations. Data was also disappointing with industrial and manufacturing production coming in short of estimates while crude oil inventories rose more than expected.
WTI staged a small correction on the inventory news but then quickly bounced back as Russia indicated it continues to support a production freeze deal. This turned focus back toward the big OPEC meeting now only two weeks away on November 30th. Interestingly, on a flat to lower day for crude oil, CAD was one of the few currencies to make headway against the relentless USD tide, either a bullish sign for oil or a sign that the loonie could be vulnerable.
On the flip side, AUD has been plunging ahead of today’s Australia employment report indicating that traders don’t think jobs could rebound as much as economists are expecting. JPY still appears to be trying to regain its footing after another selloff. SGD could be active on Singapore trade data.
Thursday could find trading in the UK and Europe active again around the UK retail sales report where the market is expecting a big bounce, and around the ECB minutes which may give a better idea of the central bank’s plans for its QE program with details more likely at next month’s meeting.
Traders in the US may have lots of news to digest Thursday with consumer prices headlining a big day for data. Fed speakers may have an even bigger impact on the market particularly on trading in the overextended and technically vulnerable US Dollar. Traders are particularly concerned about comments related to how aggressive the Fed may hike rates beyond the first one widely expected in December.
Earlier today, St. Louis Fed President Bullard suggested we could see one hike that would take the US back to neutral, a long-term dovish stance. December is the last meeting Bullard gets a vote until 2019. Philadelphia Fed President Harker who is a voter in 2017 speaks tonight while NY Fed President Dudley speaks in the morning.
The most important comments may come from FOMC Chair Yellen and Governor Brainard. Despite their ties to the Democrats, neither is expected to resign for now at least, but they could become a source of strain between the new administration and the central bank. During the campaign, Donald Trump had suggested that we would look to replace Chair Yellen at the end of her term. Governor Brainard has been the leader of the dovish faction at the Fed, was closely linked to the Obama Administration and was reportedly a candidate for Treasury Secretary had Hillary Clinton won last week. Now, we’ll see if Brainard is prepared to change her tune and get with the new program. We’ll also see how much influence she has lost following the election and if the street is still willing to listen to her any more or not.
Cisco Systems $0.61 vs street $0.59
First Solar raises full year EPS guidance to $4.60-$4.80 from $4.30-$4.50
Significant announcements released overnight include:
US producer prices 0.8% vs street 1.2% vs previous 0.7%
US core PPI 1.2% vs street 1.6% vs previous 1.2%
US industrial production 0.0% vs street 0.2%
US manufacturing production 0.2% vs street 0.3%
US DOE crude oil inventories 5.2 mmbbls vs street 1.0 mmbbls
US DOE gasoline inventories 0.7 mmbbls vs street (1.1 mmbbls)
US DOE distillate inventories 0.3 mmbbls vs street (1.5 mmbbls)
UK jobless claims 10K vs street 2K
UK 3m employment change 49K vs street 91K vs street 106K
UK average weekly earnings 2.4% as expected
UK 3m unemployment rate 4.8% vs street 4.9%
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)
5:30 pm EST FOMC Harker speaking
11:00 am AEDT NZ ANZ consumer confidence previous 122.9
11:30 am AEDT Singapore non-oil domestic exports street (3.0%) vs previous (4.8%)
11:30 am AEDT Singapore electronic exports street (2.6%) vs previous (6.6%)
11:30 am AEDT Australia employment change street 15K vs previous (10K)
11:30 am AEDT Australia full-time jobs previous (53K)
11:30 am AEDT Australia part-time jobs previous 43K
11:30 am AEDT Australia unemployment rate street 5.7%
6:30 am GMT France Q3 unemployment change previous (74K)
6:30 am GMT France Q3 unemployment rate street 9.9%
8:30 am GMT Sweden unemployment rate street 6.3%
9:30 am GMT UK retail sales street 5.3% vs previous 4.1%
9:30 am GMT UK retail ex auto street 5.4% vs previous 4.0%
10:00 am GMT Eurozone consumer prices street 0.5%
10:00 am GMT Eurozone core CPI street 0.8%
10:00 am GMT Eurozone construction output previous 0.9%
12:30 pm GMT ECB meeting minutes
8:30 am EST US consumer prices street 1.6%
8:30 am EST US core CPI street 2.2%
8:30 am EST US jobless claims street 257K
8:30 am EST US housing starts street 1,159K
8:30 am EST US building permits street 1,195K
8:30 am EST US Philadelphia Fed street 7.6
8:30 am EST US real average weekly earnings previous 0.8%
8:50 am EST FOMC Dudley speaking
10:00 am EST FOMC Yellen testimony
12:30 pm EST FOMC Brainard speaking
10:30 am EST US natural gas street 31 BCF
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