by Pinchas Cohen
Key Events
US equities finished October on a seventh straight monthly advance, the biggest upleg since February.
The S&P 500 ended with a 2 percent gain, while, over the same period, the Dow Jones Industrial Average added 4.4 percent, or almost a thousand points, boosted by positive corporate results and confirmed by continued economic growth and the ongoing hope of tax reform.
Small caps led equities higher, rebounding from their plunge.
In a very bullish display, Facebook (NASDAQ:FB) shares were little changed, even as the company's executives testified before Congress about Russian meddling in the 2016 US election.
Global Financial Affairs
The first day of November opened with a bang, as shares across the Asia/Pacific region—from Tokyo to Sydney—jumped, led by technology stocks on a raised profit outlook from Sony Corp (T:6758).
European shares hit a 2-year high, led by industrials, as nickel surged, after Glencore (LON:GLEN) upgraded guidance on Tuesday based on increased demand for electric cars.
US futures also gained as the outlook for tax reform continues to drive markets. The dollar and Treasuries traded sideways, ahead of today's FOMC policy meeting and President Donald Trump’s long awaited decision on his pick for the next Fed chairperson.
Consensus says the Fed will keep rates unchanged today but continues to believe a December hike is in the cards. Dollar bulls and bears both eagerly await Trump’s decision, due at the end of the week. The current front-runner is dovish Fed board member Jerome Powell, now ahead of hawkish John Taylor who was formerly considered to be in the lead.
The USD began forming a reversal after congressional Republicans unveiled their broad principles for tax reform on July 27. That was followed by the start of the investigation on whether the Trump campaign colluded with Russia after the first indictments from Special Counsel Robert Mueller were handed out.
The tax plan has also been under massive pressure amid mounting opposition from special interest groups. Suddenly, House Republicans postponed submitting the tax bill, after they were locked up in a room for hours trying to eliminate opposition to changes to individual retirement savings and state and local tax payments. In other words, even if the tax bill does make it to the floor, investors might not be as impressed with it as they initially thought.
Meanwhile, the greenback gained versus major peers to cap a second straight monthly advance, while gold fell for a second month.
The dollar’s biggest currency peer, the euro, completed a top-reversal, in mirror image of the dollar’s bottom-reversal. Yesterday, the euro slipped as data showed inflation unexpectedly slowed in the region.
Bitcoin jumped this morning, hitting a new all-time high, after CME Group announced it would be launching futures trading on the cryptocurrency sometime at the end of 2017.
Up Ahead
- The US October nonfarm payrolls report will be released Friday.
- Trump begins an 11-day trip to Asia, his first as President, on Friday. Trade and security issues—particularly related to North Korea—will likely be in focus.
- Markets are expecting a Bank of England rate hike on Thursday, the first in a decade.
- A slew of earnings releases this week will culminate with Facebook (NASDAQ:FB) today and Apple (NASDAQ:AAPL) tomorrow.
Market Moves
Stocks
- Japan’s TOPIX climbed 1.2 percent and the Nikkei 225 jumped 1.9 percent at the session’s close in Tokyo. Sony shares soared 11 percent, the biggest advance in more than nine years.
- Australia’s S&P/ASX 200 Index added 0.5 percent.
- South Korea’s KOSPI was up 1.3 percent. While export data missed estimates, the latest release showed they still continued to motor ahead.
- Hong Kong’s Hang Seng rose 0.9 percent and the Shanghai Composite advanced.
- The MSCI Asia Pacific Index jumped 0.9 percent. During October, it made its second-best advance of the year, up 4.3 percent.
- The Stoxx Europe 600 Index increased 0.6 percent as of 8:16 London time (2:18 EDT), hitting the highest point for the index in more than two years on its fifth consecutive advance.
- The U.K.’s FTSE 100 climbed 0.5 percent to the highest in almost two weeks.
- Germany’s DAX increased 1 percent to the highest on record.
- S&P 500 Futures rose 0.3 percent.
Currencies
- The Dollar Index increased 0.1 percent, paring its 0.2 percent high.
- The euro was unchanged at $1.1646.
- The British pound increased 0.2 percent to $1.3303, the strongest in more than a month.
- The Japanese yen declined 0.3 percent to 113.93 per dollar.
Bonds
- The yield on 10-year Treasuries increased one basis point to 2.39 percent.
- Germany’s 10-year yield rose less than one basis point to 0.37 percent, the first advance in a week.
- Britain’s 10-year yield climbed less than one basis point to 1.335 percent, the first advance in a week.
Commodities
- West Texas Intermediate crude increased 0.9 percent to $54.87 a barrel, reaching the highest in eight months on its fifth consecutive advance.
