Emerging-market currencies tanked as bonds slumped together with most Asian indices as speculation that the Fed will turn more aggressive in boosting interest rates under a Donald Trump-led administration spurred a selloff in higher yielding-assets. Gold dropped to near its post-Brexit lows.
- Traders are betting Trump will lower taxes, ease corporate regulation and ramp up spending to spur the world’s largest economy. He’s pledged to at least double the $275 billion 5-year building plans of Democratic rival Hillary Clinton, and also replace the Dodd-Frank Act financial-sector law with pro-growth policies.
- St Louis Fed President James Bullard and his San Francisco counterpart John Williams stressed the importance of the central bank’s independence from political influence. The former reiterated last night that December would be a “reasonable time” for a rate hike.
- The Dow Jones Industrial Average closed at a record high, while the S&P 500 Index added 0.2%. Contrastingly, the NASDAQ fell, led by declines in tech giants Apple and Microsoft.
- Banks and health-care shares surged on bets a Trump administration will roll back regulatory scrutiny of the industries. Industrial shares rallied on added speculation infrastructure spending will be ramped up. Utility and real-estate stocks tumbled as a rout in bonds pushed yields higher, reducing demand for the shares’ relatively high dividend pay-outs.
- Treasuries continued their selloff amid the prospect of heavier government spending and faster inflation; the benchmark 10yr yield rose 8bps to 2.14%, on course for the highest level since January. Analysts see the surge in long-term yields as a sign inflation will be on the rise, meaning the long-dormant part of the Fed’s dual mandate could force policy makers to act more swiftly to raise borrowing costs than they have in 2016.
- The US dollar continued to strengthen, with the Bloomberg Dollar Spot Index closing 0.8% higher last night, extending upon the prior day’s 1.4% gain.
- In an interview with CNBC, hedge fund luminary Stanley Druckenmiller said he sold all his gold and his short bonds globally in a bet on stronger growth and higher interest rates. Druckenmiller cited broad deregulation across industries and “serious” tax reform as key drivers in spurring growth.
- Prime Minister Justin Trudeau says he is willing to discuss a new North American Free Trade Agreement if US president-elect Donald Trump wants to.
- China’s stocks rose to the highest since January, bucking the broad weakness in Asian indices, with its benchmark index poised to enter a bull market as the economy continues to show signs of stabilization; the rollout of property curbs have also boosted the lure of equities.
- October PPI fell 0.1% month-on-month and 2.7% year-on-year, lower than the estimates of 0.0% and -2.6% respectively.
- According to Bloomberg strategists, the link between economic growth and international trade indicates countries such as Japan and Singapore would be among the most vulnerable in Asia to any rise of US protectionism when Trump becomes president. A 1% drop in world trade volume could reduce Singapore’s GDP by about 0.66%.
- The rupiah plunged 3.1% earlier today, its deepest one-day drop in 5 years, prompting the nation’s central bank to say it stepped in to stabilize the market.
- Bank Indonesia said the currency weakened after a few short-term investors rushed to the non-deliverable forwards market to hedge, causing the contracts to drop significantly. The central bank added that it doesn’t see much fund outflows and expects the move to be temporary.
- Spot gold plummeted 2.3% to $1,251.19/Oz, near its post-Brexit low. Gold is on course for a weekly drop as Trump’s win continues to spur bets that his policies will boost the economy, thus dampening the demand of haven assets.
- $1,250/Oz will be a key support level to watch, and a break below it could drive the precious metal towards the $1,200/Oz handle.
- Spot silver fell 2.0% to $18.3734/Oz, but has since pared back above the $18.50/Oz support.
- Crude oil for December delivery declined 1.4% to $44.66/bbl, after the International Energy Agency said prices may retreat amid “relentless global supply growth” unless OPEC enacts significant output cuts.
- The rhetoric from OPEC members, however, remains unchanged despite Iranian Oil Minister Zangeneh staying optimistic a deal will be reached in Vienna.
- Spot 1.4111
- USDSGD extended its rally and was 0.8% higher at 1.4159, bringing its advance over the past week to 2.4%.
- The currency pair should meet some resistance at the 1.4200 level.
- Spot 0.7577
- AUDUSD dropped to its lowest in almost a month, 2.1% lower to 0.7560, following overnight US dollar strength and a broad weakness in the Asia currency space this morning.
- The key resistance remains at 0.7835, while to the downside, the main support resides at 0.7500.
- Spot 1.3492
- A resurgent US dollar and overnight softness in oil prices drove USDCAD past the 1.3500 briefly earlier this morning.
- In his campaign, Trump has vowed to renegotiate NAFTA and his push for a more isolationist US could lead to higher inflation, which may trigger higher US interest rates just as the BOC may be considering easing policy.
- Spot 6.8093
- Onshore yuan weakens for a second day as the PBOC lowered its fixing rate by 0.34% to 6.8115 to the dollar; analysts have gathered that a fixing above the 6.8000 level signals China is allowing onshore yuan to track offshore yuan lower.
- USDCNH gained 0.4% to a session high of 6.8495 earlier before paring back to session lows.
- Spot 106.39
- USDJPY retreated from the 107 level and was 0.4% lower at 106.25 earlier today.
- USDJPY yesterday closed above its 200-day moving average for the first time this year, a bullish signal which could mean more upside for the currency pair. The next target of 108 could be reached soon.
- Spot 1.2564
- GBPUSD rose 1.6% to a one month high of 1.2585 last night, on renewed sterling strength following comments from Trump’s trade advisor Dan DiMicco who said the UK would go to “the front of the queue” when it came to foreign trade agreements.
- The 1.2100 handle remains a key support level, while 1.2800 acts as an important resistance handle.