The Trump effect continues. Rising US yields, rising US stocks and rising US Dollar.
Everything appears to be Trump Trump Trump and yet we are one week away from arguably the most important test the European Union has faced yet. A currently predicted 'No' Vote in the Italian Referendum would trigger an election where the Eurosceptic Five Star Movement could fare well and start an Italexit process. This week's nervousness therefore could out-trump Trump and trigger the first of three stages in the Washington Euro trade, a successor to our Washington Gold and Washington Oil trades earlier this year.
The trades associated with Washington Euro will be a new classification of 'Priority Trade': trades we favor over and above others regardless of their Matrix score.
We have also been busy working on new innovations that, we believe, are grounded in commonsense but will add significant value. Not least is a pet project of mine: a long overdue combined SPX Futures-Cash chart [See Below}.
Ed Matts, Founder MatrixTrade
This was the third week of the Trump effect. Money has continued to flow out of the US bond market, concerned by Trump’s reflationary plans into the US stock market driving up the USD, weakening other currencies and some stock markets. The SPX joined the DJIA and RUT in making record highs, and DXY made a 13-year high.
Monday saw a sharp ramp in GBP, which was partly sustained throughout the week and the FTSE did not fall. ECB President Draghi spoke at 1630 having little effect on ranging DAX and EUR markets. Similarly Tuesday UK PSBR beat had little impact on FTSE or GBPUSD which also ranged, for once in sync rather than inversely. EURGBP now appears to be the key currency driver of FTSE.
Wednesday’s UK Autumn Statement (formerly known as the mini-budget) disappointed, and saw a sell-off in the FTSE, although the index recovered by the end of the week. The European session also saw a 150-point DAX sell-off back to the 10600 support level. It only recovered 100 points by the end of the week.
The much bigger story was the convincing beat in US Durable Goods orders (4.8% vs 1.5%) which sent the already strong USD and US equity markets up sharply. USDJPY put on nearly 2% in 3 hours, and another 1.5% later in the week, although this second gain faded by Friday. EURUSD dropped 0.81% to touch its lowest level since March 2015.
It also notably sent GOLD to an aggressive 3-month low and FTSE and even the NDX tech index sold off heavily after the Durable Goods beat (the DAX had already sold off). This reflects the enormous money flow out of the US bond market into the best performing instruments since the election, the DJIA and Russell and USD itself.
AUDUSD suffered a 0.8% (60 pip) pullback, but this was recovered, and the pair ended up 1.55% on the week. A different story for NZD, which had lost 1.12% by the middle of the Asian session, and only managed a 0.6% gain for the week breathing light into one of our priority trades: AUDNZD.
The US equity markets took a little longer to respond, but were very strong all week, the SPX rose 1.35%, the DJIA rose 1.47%, and the RUT rose 2.26%, all finishing the week at all-time highs.
An afterthought on Wednesday was the Oil EIA beat at 1530GMT. Although it caused its usual spike, 2% in this case, this pales against the 5.8% rally into Tuesday and the subsequent 6.7% decline for the rest of the week amidst fears of no cuts at next week’s OPEC meeting. The Trump effect is now less pronounced in oil, and OPEC sentiment reigns.
The NIFTY remained a victim of the strong USD and weak Rupee for much of the week touching levels not seen since May 25th but recovered to close a mere 7 points over last Friday’s close.
Thanksgiving Thursday and Black Friday were relatively quiet providing a much welcome respite to recent volatility. Friday’s UK GDP met expectations and GBP typically gained against USD. US Markets continued their rise.
Next week is NFP week again, and with little news in the early part of the week the market should be subject to two way volatility in line with our NFP fractals. However, it is also the final week before the Italian referendum next Sunday which has, along with the weak Euro, already disconnected DAX from SPX.
A US rate hike on Dec 14 is more than 80% expected. Since the Trump effect is reinforcing the hhigher yield stronger USD trend, the reaction to NFP should show the extent to which the market is already positioned or indeed has an even greater appetite. ECB President Draghi speaks on Monday at 1400. Watch out for references to Italy.
Tuesday sees German CPI at the later-than-usual time of 1300 US GDP and Consumption is at 1330.
OPEC meet this Wednesday, and of course we get US ADP employment, the ‘sneak preview’ of NFP at 1330, as well as more US Consumption data
Thursday has US Manufacturing PMI at 1500. On all these, look for misses which may cause a sharper pullback than usual on USD. Traders are looking for excuses to sell, in particular the US indices, which are now very expensive, especially to non-US investors.
Friday’s non-farm payrolls is the first since the election, and the last before the next rate decision, so it is of particular importance. Also Friday will be the last trading day before the Italian referendum on Dec 4th. A ‘no’ vote will put the Euro under immense pressure. A ‘yes’ vote should cause the DAX and EURUSD to soar.