Last Friday, US stocks shrugged off an early trading correction and finished the week strong, a sign of renewed accumulation. This positive momentum has carried into the new trading week, particularly overseas. Overnight the Nikkei soared 1.7% while this morning the Dax and FTSE are both up about 0.4%. US index futures are mixed with the Dow up slightly while the Nasdaq and S&P are down slightly.
Mid-October through April has historically been the strongest time of the year for stock markets. This year's seasonal rebound got off to a slow start but since the election has increasingly been gaining traction.
Last week, the US was the main driver of trading action but today, the positive fundamental support has broadened following the announcement of very strong GDP and industrial production reports for Japan, plus in-line retail sales and industrial production reports for China.
Capital continues to move out of defensive havens back into stocks and commodities. Gold, JPY, and bonds are all sinking again today. The US dollar continues to rally on anticipation of higher inflation and interest rates going forward. The US dollar gains suggest that traders are expecting the pace of rate hikes to accelerate from once a year to at least twice, maybe more.
Europe also remains under pressure today. We’re seeing a trading correction in GBP unable to keep up with the rising greenback. EUR remains under a cloud with traders concerned the stagnant EU could left behind by other regions. The potential for political turmoil in Europe is becoming a bigger concern heading into December’s Italian referendum and Austrian presidential elections.
Commodity action has been mixed this morning. Crude oil is under pressure again amid ongoing uncertainty about and OPEC production deal. Countries continue to stake out positions with the November 30 meeting now just over two weeks away.
The issue more impacting the market today is reports Iranian production continues to increase, a possible sticking point. US drill rig increases should be taken with a grain of salt as exploration seasonally ramps up in the winter when its easier to gain access to drill locations. The lower oil price is dragging on CAD and could impact trading in energy stocks today.
Copper, meanwhile, appears to be getting over Friday's big trading correction and resuming it's advance as trades related to the street sorting out the potential winners and losers in a Trump America continues. The announcement over the weekend that Steve Bannon and Republican Chair Reince Prebius will both have high level roles have boosted confidence from the market that Trump will try to find a balance between making necessary changes that benefit the country without going too radical which could be disruptive. Protests continues over the weekend but Trump's first big interview last night on 60 Minutes showed his pivot from campaign to governing stance is underway.
Some of the splits and emerging trends we have seen in the market lately may continue, including traders taking profits out of high value new economy sectors like technology to fund moves into areas the benefit from manufacturing and construction. Interest sensitive areas like telecom and utilities may underperform. Areas that could benefit from less regulation like financials and biotech may attract attention. In mining we could see a growing divergence between base and precious metal miners as prices diverge.