New Trends Emerge – Nov 9th 2016

cartoon5novThe markets remain torn between central bank monetary policy – most notably the US Fed in December – and the more immediate concerns over the outcome of Tuesday’s US election. However the closer we have got to the election, the more this and uncertainty has dominated.. This week has started with a FBI-Clinton rip but last week was a very different story: as the market was ripped apart by increasing Election uncertainty.

LAST WEEK

Monday was very quiet in the markets, ignoring the as expected Eurozone CPI and GDP figures, but perhaps the sharp $2 (4%) drop in oil perhaps tipped the complete breakdown in equities which started the next day.

Tuesday Asian session saw the JPY and AUD rates held; JPY hardly reacted, but AUD quickly rose 60 pips, although this gain had faded totally in 24 hours. Gold reached its weekly high, and then consolidated for the rest of the week, as did its current sister, EURUSD

As Europe opened, the DAX, FTSE, NIFTY and NKY and SPX futures, and oil all fell sharply, starting a trend which lasted all week, more or less ignoring all the news. The ISM beat in Tuesday’s US session had no effect.

On Wednesday, the Fed unsurprisingly held the interest rate at 0.5%, causing hardly a ripple. USDJPY bounced 25 pips, having already lost 200 pips since the day before, and even this faded in Thursday’s Asian session. Gold gave up $20 into the Fed, but recovered shortly afterwards.

Thursday saw GBP receive a significant boost after the British courts ruled that Parliament must debate Brexit. Typically as bearish uncertainty became uncertain GBPUSD advanced 175 pips in three hours, holding on to those gains, and finishing up 320 pips for the week to a post Fat Finger new high, the first time since Brexit that it has regained a recent high.. The rate hold at 1200 was as expected, and did not have much effect.

Unlike equities, USDJPY finally found a bottom at 102.60, and slowly consolidated into the end of the week creating strong parallels with 2 previous tops and tipping the current strong recovery.. Similarly USDNZD found a top. USDCAD even started to rise, the only major currency to fall against the dollar this week due to the weakening oil price, which ended 11.3% down on the week.

Friday’s NFP produced only the second miss out of the last 10 Octobers and was temporarily interpreted as ‘bad news is good news’. However SPX followed the Miss fractal almost to the tick as it made marginal new lows. This was the ninth straight day of decline for SPX, the worst run since December 1980. As traders started this week with a big sigh of relief, they still may end up holding breath as, until the election result, uncertainty reigns.

charts5nov

NEXT WEEK

With limited news next week, we expect market movements to be entirely dominated by the result of the US Election. Once the result is known, look out for black swans in the reaction to the result around the world.

There is a GBP inflation report and GDP estimate on Tuesday. After last week’s ramp, misses may give traders an excuse to sell GBPUSD. Wednesday sees the NZD rate decision but movement on USD will probably outweigh any reaction.

Calendar – All Times GMT:

Sun Nov 6
2350 BoJ Minutes

Tue Nov 8
1000 GBP Inflation Report
1500 GBP NIESR Report Estimate

Wed Nov 9
0000 US Election
Voting finishes 1900EST. Three passes:
1. Exit polls, which precede the voting close. Needs to be a landslide to sustain move.
2. States start to report, again, would need to be decisive.
3. Approx 3GMT for Ohio (bellwether state).

2000 NZD Rate Decision
2000 NZD Monetary Policy Statement

Fri Nov 11
1450 CAD Boc Governor Speech