The European market (Stoxx-600) is currently trading around 367.28 in the mid-EU session Thursday, edged up by almost +0.25% amid higher US dollar index (DXY), some earnings boost from banks and subdued global cues. The Stoxx-600 jumped almost +1.06% Wednesday on hopes of softer Trump trade rhetoric as Trump lost his control over the US legislative agenda.
Overall, the European risk-on sentiment was also supported by China’s upbeat trade data and a solid report card from SocGen, Commerzbank (DE:CBKG), and Sodexho, while also dragged by the never-ending Italian budget saga. But European stocks fell back from a 3-week high on weaker-than-expected German trade data after German September exports unexpectedly fell -0.8% sequentially, the biggest decline in 7 months.
On Thursday, the US dollar index (DXY) also jumped almost +0.25% ahead of FOMC meeting. Although there will be no monetary policy action, the market is now discounting a December’18 Fed hike as-well-as March’19. The US dollar index plunged to a 1-week low of 95.68 on Wednesday after the US midterm election result as a divided Congress is bad for the greenback for possible policy paralysis.
Earlier in the Asian session Wednesday, there was some USD optimism as it looked like Trump’s Republicans may be able to hold both chambers of Congress. That sentiment soon faded as Republicans were flipped, but the win for Democrats was also not so much inspiring as they lost the prestigious seats of Florida and Texas. But eventually, the USD recovered and surged to a high of 96.46 before closing around 96.16 (-0.16%) as both Trump and the House leader Pelosi (DNC) indicated they are willing to work/cooperate with each other on policy matters that would help the economy keep growing.
The market initially assumed that a split Congress and the subsequent US political gridlock would crush the risk-on trade, but the Democrats' control of House led to an immediate shift in tone by President Trump. It’s almost clear that Trump, the “king of dealmaker” is also willing to make a deal with the DNC in politics and policies, and the market likes it. The market is expecting a more collaborative (reconciled) attitude by President Trump and the DNC as they recognize each other's powers to promote or block policy progress.
Trump said: "Hopefully we can all work together next year to continue delivering for the American people, including on economic growth, infrastructure, trade, lowering the cost of prescription drugs. The Democrats will come to us with a plan for infrastructure, a plan for health care, a plan for whatever they're looking at and we'll negotiate”. Trump now clearly wants the DNC to kick the can down the road first and he will eventually blame the DNC for any policy paralysis under his Presidency.
In any way, the political uncertainty about the US midterm election was one factor driving October’s risk-on trade plunge, as the market was anxious that because of a possible “blue wave”, radical economic policy changes could hurt the US corporates benefit from tax reform and an emphasis on deregulation. But the market is now relieved that because of the lack of a strong “blue wave”, the US economic policies status-co will be maintained at least and there will be no rollback of Trump’s tax cut, fiscal stimulus, and deregulation policies.
Thus there will be business as usual and the Fed will continue to raise rates to a neutral or just above the neutral, they think as “appropriate”. And the Democrats won't put up too much resistance for Trump’s infra spending plan and other fiscal stimulus measures for the sake of US employment.
Thus USD is getting stronger and the US bond yield also jumped to almost 3.24% from Wednesday’s low of around 3.21%. Subsequently, USDJPY also jumped from Wednesday’s low of 112.95 to a high of 113.82; it was also helped by over 550 points rally in Dow. EURUSD is also under stress on Italian budget jitters, while GBPUSD continues to be a victim of Brexit and UK/EU politics as usual.
GBPUSD is currently trading around 1.3117, edged down by almost -0.08% and off the 1-week high of 1.3174 on hopes and hypes of a definitive Brexit and Irish border deal. As per latest report, the UK PM May will soon be in Brussels to “plead” for additional days for the Irish border deal, while another report suggests that the “Brexit deal text” draft is almost ready for release on next Monday, although there are immense confusions over “backstops of backstops”. In brief, there is no real solution to the thorny issues of the Irish border despite Brexit clock is clicking fast and marathon negotiations are going on for the last few months.
Pivot: 1.32 Support: 1.314 1.309 1.304Resistance: 1.326 1.3305 1.343 Scenario 1: STRONG ABOVE 1.32000 Scenario 2: WEAK BELOW 1.31000 Comment: NEAR TERM RANGE: 1.26595-1.33050
US 30
Dow future (DJ-30) is currently trading around 26131, slumped by almost -0.20% (-50) amid some weakness in technology stocks. Qualcomm (NASDAQ:QCOM) and Microchip Technology (NASDAQ:MCHP) are both plunged in pre-market trading on guidance warning amid concern about a slowdown in future sales.
Pivot: 26350 Support: 25800 25600 25400Resistance: 26550 28825 26950 Scenario 1: STRONG ABOVE 26350 Scenario 2: WEAK BELOW 26300-26250 Comment: NEAR TERM RANGE: 24000-27000
Boeing (NYSE:BA)
Boeing is another stock, which could be benefited from a softer Trump after US midterm and a potential US-China trade truce. Boeing closed around 372.02, jumped by almost +1.51% on Wednesday and for November, it surged almost +4.85% after a slump of -4.58% in October. Boeing is another trade bellwether as it exposed to China significantly. Also, being exposed in defense/military sector, Boeing could be boosted by US defense spending, which has bipartisan support.
Pivot: 374 Support: 368 361 357Resistance: 377 380 395 Scenario 1: STRONG ABOVE 374 Scenario 2: WEAK BELOW 372-370 Comment: NEAR TERM RANGE: 328-378
Gold
In commodities, Gold is currently trading around 1226, edged down by almost -0.04% on higher US dollar index. Overall, Gold is getting support from higher inflation, thanks to Trump’s bellicose policies, be it on trade or Iran. Gold is also supported by surging global debts in the US, EU, Japan and China and an increasing political risk in the EU as-well-as the US.
Pivot: 1245 Support: 1218 1209 1200 Resistance: 1265 1280 1305 Scenario 1: STRONG ABOVE 1245 Scenario 2: WEAK BELOW 1240-1235 Comment: NEAR TERM RANGE: 1180-1245