Relief came today in what looks like a relief rally for stocks. After a disastrous month and a kick up in oil prices, stocks were looking for something to buoy the market and they did. Good news flooded in from various parts. The Italians are behaving and look like falling someway into line, Brexit is proceeding with the EU and May is happy. All is good for the moment.
The surge in oil was seen as positive. WTI bounced off its low of $50.40 and is above $51 a barrel. Brent surged and is now above $60. It would appear that the Saud’s pumped a record amount of oil as Trump applied pressure and this production caused the slumping oil price.
This all stopped when Trump announced waivers for Iranian oil to a number of countries. Falih (Saud Energy Minister) has suggested that the Saudis should cut production by 1 million barrels a day. Over the past week, hedge funds and money managers have increased their net longs in U.S. crude futures.
The leaders of the pack, the FAANG stocks rebounded strongly with Amazon up 5%. Treasuries rose a tad in yield and the dollar was stronger. Tiffany’s caught the start of the holiday season sales bump and CVS health can now do a deal with Aetna.
For many, today was a relief after the disaster of last week. The tech sector was up 1.7% and the S&P Retail Index was up 2.3% on buoyant sales figures from the start of the holiday season buying spree. Cyber Monday is expected to reach $7.8 billion in online sales.
For some, however, not all that the Donald tweets is good. Trump’s boast of telling GM to bring manufacturing back to the State may be premature. GM announced it would fire 14,000 workers across 5 manufacturing plants as it cuts production of small cars in favour of electric vehicles and SUVs. The embattled CEO, Mary Barra, is to meet Kudlow possibly today. For stock holders, the decision to close plants and sack workers saw the stock price rise. The stock was last up 5.7%.
Treasuries were weaker in price on the day as risk on trades accelerated throughout the day. Yields rose across the curve. However, a possible bear market for treasuries could be starting to gather a little bit of momentum.
Overseas buyers are holding back on purchases as auction sizes keep rising. Participation has not increased since Trump became President. A slackening demand could hurt the U.S. as interest costs rise thus hindering its economic growth. In 2013, foreign investors accounted for 50% of purchases now foreigners own just 40.5%. Both Japan and China have scaled their purchases since 2017.
However, in Europe there is cause for some optimism. Italian 10-year bonds rallied some 20bp after news the Government was bowing to EU pressure to reduce next year’s budget deficit. The spread between the Italian 10-years and 10-year bunds tightened to 279 bp before ending the day at 289bp.
Later this week in Buenos Aires, Trump will meet with Xi Jinping at the G20 Summit. Expect some tweets about trade leading into the summit. Those tweets no doubt will be a stimulus to equity markets.
The outcome will probably be clouded. However, it is hard to see an agreement being reached, given recent comments from Pence and others in the White House Administration. And it appears unlikely that Trump will spare China from the $250 bio tariff hike to be implemented shortly. The best that markets can do is not be tricked by the tweets.
As we head into December, structural economic issues abound. The deficit is moving. Those tax cuts for lower income earners are not quite as they seem as a number of deductions have been removed, commencing in 2019, meaning higher taxes. Once the realisation occurs ,we may see retail stall.
We still have to deal with the debt ceiling and, of course, there is the latest Trump missive, that he cold permanently close the Mexican Border. That would be interesting because central Americans and people south of the U.S. border perform much of the menial work that many U.S. citizens won’t do, such as picking fruit, processing seafood, cleaning the streets, emptying the garbage, building buildings etc.
They supply much of the labour. Who is going to do this work if the Border is closed? We already saw a number of crab processors in Chesapeake Bay close down as a result of Trump’s last missive about Mexican workers and visas.
Equities: The S&P 500 rose 1.6% and the Dow was up 1.46%. The Vix closed at 18.77 while the Stoxx rose 1.2%
Currencies: The Bloomberg Dollar Index gained 0.2%, and the yen fell 0.6%.
Bonds: The ten-year closed around at 3.061%. The 2-year closed at 2.832% and the 30-year closed at 3.317%. The ten-year bund closed at 0.36% and the OAT closed at 0.739%. The U.S. curve closed on the day with the following closes 2/10 at 22.7 bp, 2/30 at 48.4 bp and the 10/30 closed at 25.5 bp. The U.S. 5-year closed at 2.89%. On Friday, there was a trend to flatten the curve.
Commodities: WTI rose 2.3%.Gold fell 0.1%, copper fell 0.67%.
Bitcoin is trading around $3,625.9.
Aussie Market Today.
Risk on day leading into the G20 later this week. Favour buying equities for the moment but be wary the rally has a smell of relief about it. The main outcome later this week probably will be trade remains under the spotlight. So I expect a selloff post the G20 Meeting, unless there is an agreement reached between China and the U.S.
Bonds were slightly weaker as we are in risk off mode. Expect a little bit of selling but nothing too dramatic. Asia will probably lead the markets movements.
The Aussie dollar is sliding against a rampant King Dollar.
Geopolitical risks remain high.