Investors will continue to digest the results of the Presidential election and how a Trump Presidency may affect policy and the markets. On the economic calendar, we have a busy week with Retail Sales, PPI, CPI, Building Permits and Philly Fed. At the bottom is a breakdown of winners and losers so far from a Trump win in the election.
A Crash and Then a Record: In the early morning hours of last Tuesday night, futures were down 5% as it looked like Trump was about to win the election. This was similar to the reaction seen after the unexpected Brexit vote. And similar to Brexit, the markets recovered. The only difference was this time the markets had recovered in a few hours, instead of a few days. The result of looking at his potential policies had the markets racing higher setting new all-time highs for the Dow. Investors will look to see if this bullish activity continues, or if we see a pull back and some profit taking. The broader markets finished last week up nearly 4% (Dow up over 5%), with the Russell 2000 up over 10%.
Bond Market Sell Off: Last week witnessed the largest bond market sell off in recent history. 10 year Treasuries sold off sending the yield above 2% for the first time since January. 30-year Treasury bonds hit 2.92%. With a Trump Presidency seeing inflation increase, investors will see if the selloff continues and yields rise even further steepening the curve. If these yields are to hold, expect mortgage refinancing to plummet on the higher rates.
Super Mario Speaking: On Monday (11/14) ECB President Mario Draghi is expected to speak. Investors will be listening to Draghi’s first reaction to the US Presidential election. Traders will listen for hints as to any changes to the ECB’s bond buying program. This could include lengthening of the current QE program which would weaken the Euro. Draghi is also expected to speak on Friday at the Euro Finance Week.
CPI: On Thursday (11/17), CPI is released. Should CPI come in stronger than expected, it would signal that the consumer will be able to absorb an interest rate hike before year end. Since this reading is from data before the election which saw bonds selloff on the chance of seeing higher inflation from a Trump stimulus program, a strong reading would likely guarantee an interest rate increase in December.
FOMC Members Speak: 2 FOMC members (James Bullard and Esther George) are scheduled to speak this week. The 2 members will likely comment on how a Trump Presidency may affect the economy. Even with the election, the FOMC continues to say there will be 1 rate hike this year, we will wait to see if they follow through with the potential raise.
China: Last week, the Chinese Yuan had its steepest weekly decline since January as the US Dollar strengthened in reaction to the election. Investors will monitor the Yuan to see if continues to fall. Trump rhetoric this week on his potential policies from his administration could also adversely affect the Yuan. Up this week, the Chinese economy is scheduled to release data on Industrial Production and Retail Sales. Weak readings from either data could send the Yuan lower.
Trump: As the market went away from fundamentals last week and trading on pure emotion in a lot of cases, investors will look to see if volumes come down and if the market retreats from the all-time highs we had last week. Here’s a breakdown of certain winners and losers of a Trump Presidency:
Banks: Shares have shot up at banks on both sides of the Atlantic as Trump will likely repeal Dodd Frank. (Prop traders will have jobs again)
Construction: Trump plans on boosting US infrastructure to help stimulate the economy. Demand for metals for building materials including building a potential wall along the Mexican border has construction companies and metal prices shooting up. Copper is currently up approx. 10%.
Oil Refiners: Trump may ease the requirements on the Renewable Fuel Standard which will lower refiners costs. Refiners have shot up.
Russian Economy: Improved ties with Russia would help the Russian market and the Russian Ruble is up on Trump’s election.
Mexico: The Mexican Peso is now at an all-time low on fears that Trump’s Presidency will have negative effects on the country. (That Trump Trade must be paying dividends now)
Government Bonds: We have seen US Treasuries sell off on the prospect of inflation increasing with potential pro-growth policies.
Renewables: Trump is likely to reverse green energy policies Obama had in place. Renewables have been hit hard on the outcome.
Healthcare Companies: With Trump planning on repealing Obamacare in his first 100 days, healthcare companies will take a dive as less people may potentially sign up for healthcare.