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Financial Markets Upbeat After US Election But Worries Remain

Financial Markets Upbeat After US Election But Worries Remain

2016-11-10 07:39:00
Ilya Spivak, Head Strategist, APAC
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Talking Points:

  • US Dollar corrects lower having rallied after presidential election
  • RBNZ’s Wheeler says “open” to FX intervention, hurting NZ Dollar
  • Stock futures hint at risk-on mood but dangers loom on the horizon

The markets continue to digest the aftermath of the US presidential election after an action-packed 24 hours marked by wild swings across the asset spectrum. The US Dollar corrected lower against nearly all of its major counterparts having finished a tumultuous session on the upside yesterday. This may have reflected returning Fed tightening bets. Traders priced in an 82 percent chance of a December hike by day’s end.

It was the New Zealand Dollar that proved weakest on the session however. Prices popped after a widely expected RBNZ rate cut came bundled with a policy statement that played down the need for further easing. Sellers returned in force after central bank Governor Wheeler said policymakers “always have an open mind on FX intervention”. The Australian Dollar retraced upward having underperformed in yesterday’s trade.

A quiet economic data docket in European and US hours ought to make it easy for the US election outcome to continue dominating the spotlight. S&P 500 futures are pointing solidly higher in late Asian trade, suggesting the risk-on mood that took root yesterday as markets on-boarded an unexpected triumph by Republican nominee Donald Trump is poised to continue.

Sentiment initially crumbled as state-by-state returns began showing Mr Trump edging out Democratic rival Hillary Clinton, as expected. Things began to turn as Trump delivered a conciliatory-sounding victory speech foreshadowing plans to boost fiscal outlays on a large-scale “economic renewal” effort. This appeared to inspire an appetite for bargain-hunting, particularly in the context of deep intraday losses.

A focus on infrastructure projects delivered strong gains for materials and industrials shares. Financial and health care stocks scored the biggest gains however, presumably as traders priced out the probability of a stricter regulatory regime that was expected to be pursued by a Clinton White House.

The Trump-inspired reallocation of portfolios may not be all good news for risk appetite however. Pledges to label China as a currency manipulator, withdraw from some free trade agreements and renegotiate others may begin to worry markets. If this drives up trade barriers, rising import prices may hurt consumption, the largest contributor to GDP. That could bode ill for earnings in related sectors and growth as a whole.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

20:00

NZD

RBNZ Official Cash Rate

1.8%

1.8%

2.0%

23:50

JPY

BOJ Oct Meeting Summary of Opinions

-

-

-

23:50

JPY

Machine Orders (MoM) (SEP)

-3.3%

-1.5%

-2.2%

23:50

JPY

Machine Orders (YoY) (SEP)

4.3%

4.1%

11.6%

23:50

JPY

Money Stock M2 (YoY) (OCT)

3.7%

3.6%

3.5%

23:50

JPY

Money Stock M3 (YoY) (OCT)

3.2%

3.1%

3.0%

0:00

AUD

Consumer Inflation Expectation (NOV)

3.2%

-

3.7%

0:01

GBP

RICS House Price Balance (OCT)

23%

18%

18%

0:10

NZD

RBNZ's Wheeler at Parliament Select Committee

-

-

-

0:30

AUD

Home Loans (MoM) (SEP)

1.6%

-1.6%

-2.7%

0:30

AUD

Investment Lending (SEP)

4.6%

-

-0.8%

0:30

AUD

Owner-Occupier Loan Value (MoM) (SEP)

0.9%

-

-1.0%

2:00

JPY

Tokyo Avg Office Vacancies (OCT)

3.64

-

3.7

2:00

USD

Fed's Williams Speaks in San Francisco

-

-

-

6:00

JPY

Machine Tool Orders (YoY) (OCT P)

-8.9%

-

-6.3%

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:45

EUR

France Wages (QoQ) (3Q P)

0.3%

0.3%

Low

7:45

EUR

France Non-Farm Payrolls (QoQ) (3Q P)

0.1%

0.2%

Low

7:45

EUR

France Industrial Production (MoM) (SEP)

-0.3%

2.1%

Low

7:45

EUR

France Industrial Production (YoY) (SEP)

0.4%

0.5%

Low

7:45

EUR

France Manufacturing Production (MoM) (SEP)

-0.1%

2.2%

Low

7:45

EUR

France Manufacturing Production (YoY) (SEP)

0.4%

0.7%

Low

9:00

EUR

Italy Industrial Production (MoM) (SEP)

-1.0%

1.7%

Low

9:00

EUR

Italy Industrial Production WDA (YoY) (SEP)

2.2%

4.1%

Low

9:00

EUR

Italy Industrial Production NSA (YoY) (SEP)

-

7.4%

Low

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.0253

1.0646

1.0778

1.1039

1.1171

1.1432

1.1825

GBP/USD

1.2050

1.2243

1.2324

1.2436

1.2517

1.2629

1.2822

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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