First We Take Manhattan, Then We Take DC

Investors should have a quiet trading week during the Holiday shortened week. On the economic calendar, we are relatively quiet with Durable Goods and the FOMC Meeting Minutes.

US Dollar Strength:  As expectations for a repatriation of US corporate cash overseas and a likely Fed rate increase in December, the US Dollar has surged against all major currencies with a key dollar index hitting a 13 year high. We have also seen the Euro decrease for 10 days in a row, now trading around $1.06. The last time we saw this long of a decrease, Lehman went bankrupt 4 days later. Investors will watch to see if the Dollar continues to strengthen. The Euro will be watched for further declines as an Italian referendum is scheduled for Dec 4th and a potential monetary stimulus announcement from the ECB. If the Italian referendum votes no, expect to see European markets fall, and likely the US.

Super Mario Speaks: On Monday (11/21) ECB President Mario Draghi is expected to speak about the ECB’s Annual report. Investors will be listening to Draghi’s speech for clues to see if the ECB will extend their bond purchase program, which is scheduled to end in March. Should Draghi announce the expansion of the program, or further quantitative easing, expect stocks on both sides of the Atlantic to go up with the Euro going lower and European bond yields going lower. If he does not mention any additional stimulus measures, expect the markets to potentially fall.

FOMC Meeting Minutes: On Wednesday (11/23) the latest FOMC Minutes before the last meeting of the year are released. Investors will be looking closely at the language of the minutes to see what may have changed from the previous FOMC meeting. Unless we see significant language changes, expect limited movement in the broader markets. As of this moment, the markets are predicting a 90% chance of a rate hike in December.

Shippers: Last week the Baltic Dry Index (a key measure of the cost to ship raw materials) surged, hitting 18 month highs. Companies that ship dry bulk have witnessed crazy returns on the expectations of a Trump Presidency sending the price of shipping commodities (such as Copper) soaring. Some dry bulk carriers witnessed over 100% increases.  The lack of liquidity in some of the smaller companies sent their stocks soaring. Investors will watch to see if some of these continue to rise on further short squeezes, or if they come crashing down to pre-election trading.

Russell 2000: Since the election, we have seen the markets go higher, but especially small caps as a pull back on regulation, a repeal of Obamacare and a potential repatriation of cash has seen the Russell 2000 go up 13% since the election. It has been up 11 days in a row. Investors will watch to see if the streak continues as individual stocks will likely continue to climb.

Bond Market Sell Off: Benchmark yields have now had their steepest 2 week increase in 13 years. 10 year Treasuries continue to sell off sending the yield as high as 2.355%. Investors are looking to see if the selloff continues and yields rise even further steepening the curve. If these yields do not reverse, expect mortgage refinancing to plummet on the higher rates. Housing construction companies will also likely suffer. Bond funds in the latest week also saw their biggest outflows in 3.5 years, as investors have been pouring money into US equities. The outflows from Bond funds which also will push yields higher.

Manufacturing PMI: PMI readings from across the globe are due out this week. Traders will watch these readings as potential weak readings could cause central banks to take further steps to stimulate their respective nation’s economies.

Thanksgiving: Markets are closed in the US on Thursday (11/24) for Thanksgiving and close early on Friday (11/25). On Friday, there is the potential for heavier swings in individual stocks because of a lack of liquidity as a lot of traders are off. But overall expect a quiet day with very little news also.

 

Happy Turkey Day.