by Eli Wright
Normal trading volumes returned to the markets yesterday, and with it came profit-taking, as investors sought to cash out of the Trump Rally, at least for now. Despite expectations of a successful Cyber Monday, Wall Street ended the day yesterday broadly lower. Ongoing concerns regarding tomorrow's OPEC meeting alongside the upcoming referendum in Italy this weekend, as well as the state of the Italian banking sector also contributed to the decline in global equity markets.
The Japanese market took an overnight hit, as the Nikkei dropped 0.27% to 18,307.04. In Hong Kong, the Hang Seng fell 0.23%, to 22,778. In China, reports of government investment in infrastructure and property sent the Shanghai Composite up 0.16% to 3,282.19.
In Europe, markets appear to be getting skittish ahead of the December 4 referendum in Italy. The FTSE MIB fell nearly 2% yesterday, but is currently up 0.74% as of this writing, at 16,342.50. The FTSE 100 has fallen 0.76% to 6,745; the DAX is relatively flat, down 0.02%, to 10,581; and the Stoxx 50 is up 0.41%, at 3,027.
The Dow stayed above its new 19k level, but dropped 0.28%, to 19,097.90. The S&P gave back 0.53% yesterday, closing at 2,201.72. The NASDAQ closed 0.56% lower, at 5.368.81. The Russell 2000 tumbled 1.33%, down to 1,330.47. Nevertheless, it's still outperforming the S&P 500, at least for now.
Profit taking looks likely to continue today. In pre-market trading the S&P and Dow are both up 0.12%; the NASDAQ is up 0.1%
The VIX has jumped 6.56%, to 13.15, perhaps on fears of upcoming European risk events. Risk-off sentiment has investors scurrying back to bonds for now, and the rush to Treasuries sent yields lower: the 2-year yield is now at 1.103; the 10-year is at 2.314%; and the 30-year is at 2.976%.
Cyber Monday: First Look
Preliminary figures are showing that Cyber Monday didn't disappoint, with Adobe tracking online sales at $3.36 billion, which would be a 9.4% increase YoY. However, despite the good numbers, the reversal in US equity markets hit US retailers: Amazon (NASDAQ:AMZN) fell 1.74%; Target (NYSE:TGT) dipped 1.12%; and Wal-Mart (NYSE:WMT) ticked down 0.06%. Macy’s (NYSE:M) fell by 2.29% and Sears (NASDAQ:SHOS) dove 5.07%. Most likely, since neither Macy's nor Sears has a strong online presence, their declines probably had less to do with broader market sentiment and more to do with the lack of foot traffic to bricks-and-mortar stores over the holiday weekend.
The S&P 500 Consumer Discretionary Index lagged the general S&P, falling 0.82%.
Source: Fidelity.com
Forex
Strong optimism towards a Fed rate hike in December is largely priced into the US Dollar Index at this point, although the dollar has dipped recently due to profit-taking. The greenback swelled more than four percent in the wake of the US election, so the fact that investors want to lock in some gains now should not be surprising. However, there is still room for the dollar to move higher. The market has not yet taken additional possible rate hikes in 2017 into account, the first of which may occur following the Fed’s meeting in June 2017. The Dollar Index is currently at 101.33.
The euro climbed as much as 1.1% versus the USD yesterday, to an 11-day high of $1.0686, partially propelled by social conservative Francois Fillon's win in the center-right primary elections in France on Sunday. He now becomes the favorite to win in the upcoming general elections, and markets prefer him to far-right candidate Marine Le Pen. However, the single currency reversed its gains after ECB President Mario Draghi’s speech reaffirmed the need for monetary stimulus, and questioned the effects Brexit might have on both the EU and UK. European markets are also nervous about what might happen in Italy come Sunday. The EUR/USD pair is now trading at $1.0599.
Commodities
Gold has dropped below its $1,200 support, part of a larger PM down-trend. However, there are signals of a possible near-term pause in the yellow metal’s slide. To begin with, gold has closely tracked the bond market and the US Treasury sell-off appears to be slowing. In addition, the commodity itself is diverging from gold stocks—VanEck Vectors Gold Miners (NYSE:GDX) and VanEck Vectors Junior Gold Miners (NYSE:GDXJ)—which have not seen similar new lows. If gold does experience a rebound, traders might want to use that opportunity to cut their losses rather than accumulate additional positions. Gold is down 0.32% today to $1,187 as of this writing.
Oil prices continue to fluctuate based on prevailing market sentiment—and the latest OPEC and even non-OPEC nation announcement—regarding the likelihood of an agreement to curb production. Despite a mid-day boost yesterday following optimistic comments from the Iraqi oil minister, prices ended the day lower. Prices will probably move within a $45-48 zone until tomorrow, when OPEC meets in Vienna. An announcement that no deal was reached could send prices tumbling to the low $40s, high $30s. If OPEC surprises everyone and a deal involving substantial output cuts materializes, crude might bounce all the way up to $60. Brent is currently trading at $48.37; Crude is at $46.26.
Natural gas also saw significant gains, rising over 3% to $3.302 as colder weather begins to drive up demand. It’s now trading even higher, at $3.342.
Emerging Markets
Trump's protectionist stance, coupled with the strong US dollar (which is currently close to fourteen-year highs), means weaker currencies, stocks and bonds in emerging markets. No shock then that one should proceed with caution in emerging markets for now. Recent performance by a variety of country ETFs have been disappointing:
iShares MSCI Emerging Markets (NYSE:EEM) lost nearly 5% this month; iShares MSCI Mexico Capped (NYSE:EWW) and iShares MSCI Brazil Capped (NYSE:EWZ) have both nosedived approximately 13%; iShares MSCI Turkey (NYSE:TUR) has plummeted 11%; iShares MSCI India (NYSE:INDA) has declined 9%, while iShares MSCI South Africa (NYSE:EZA) has fallen almost 5%.
One of the few EM bright spots has been Russia, where optimism over higher oil prices and hope that the US President-elect will lift the Crimea sanctions have buoyed local markets. The VanEck Vectors Russia (NYSE:RSX) is 3% this month.
For the most part, FX markets confirm the above: The Brazilian real has fallen 5% over the course of the month; the Mexican peso declined by 7%. India's rupee is currently down approximately 3% while the Russian ruble has fallen by 2%. The Turkish lira has fallen the most, down 9%.