Trump!... I was WAY off!

 

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:

The Winners

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. 

The Losers

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.  

 

My Big Fat Greek Tragedy

"The problem with socialism is that you eventually run out of other people's money" - Margaret Thatcher

 

Intro: Investors have a light week ahead highlighted by Retail Sales, PPI, and Michigan Sentiment. Investors will also continue to track the recent bond selloff

 Greece: Last Friday (6/5), Greece skipped a debt payment to the IMF. However, they legally have until the end of the month to make the payment and are planning to bundle with other payments to the IMF. As investors remain weary on Greece , Should Greece fail to pay its debt obligation, expect global markets to trade lower and heightened volatility in the currency markets

 Retail Sales: On Thursday (6/11), Retail Sales are released. Should the figure come in better than expected, it would continue to signal an improving economy to the FED, indicating that the average US consumer can absorb an interest rate hike 

Import Prices: On Thursday (6/11), import prices are released. Should import prices increase for the month, investors will point to rising energy costs

Bond Yields: Last week, we witnessed a major selloff in bonds across the world following comments by Mario Draghi, stating that markets should get used to volatility. Yields on 10-year German Bonds jumped to 0.99% and 10-year US Treasury yields hit highs for the year. Analysts are blaming a lack of liquidity for the bond selloff. Should we continue to see volatility in global bond markets, investors believe that it could spill into the equity markets

U.S. Treasury Yields: After the stronger than expected jobs report, we witnessed U.S. Treasury yields jump as investors believe that a June rate hike to occur in 2015 is potentially still in the cards. Investors will be monitoring U.S. Treasurys as we are now one week away from the June FOMC Meeting

Oil Rigs: Last week, the number of rigs drilling for oil in U.S. oilfields fell by 4 lowering the total to 642. This is the 26th consecutive week of declines. On the news, oil jumped 5% for the day. Traders will watch to see the if Baker Hughes weekly oil rig count lowers again, which could put upward pressure on the price of oil. Down 894 oil rigs for the year.

MONDAY (6/8)

  • Japan GDP
  • China Trade Balance
  • G7 Meetings
  • Canada Building Permits

 

TUESDAY (6/9)

  • 10:00 AM ET – Wholesale Inventories - Apr
  • 10:00 AM ET – JOLTS Job Openings - Apr
  • National Australia Bank Business Confidence
  • China CPI & PPI

 

WEDNESDAY (6/10)

  • 10:30AM ET – Crude Oil Inventories
  • 2:00 PM ET – Treasury Budget - May
  • Reserve Bank of Australia Governor Glenn Stevens Speaks
  • Bank of England Governor Mark Carney Speaks
  • Great Britain Manufacturing Production

 

THURSDAY (6/11)

  • 8:30 AM ET - Weekly Jobless Claims
  • 8:30 AM ET - Retail Sales - May -
  • 8:30 AM ET - Import/Export Prices - May
  • 10:00 AM ET - Business Inventories - Apr
  • Reserve Bank of New Zealand Rate Statement
  • Australia Unemployment Rate
  • China Industrials Production
  • Bank of Canada Governor Stephen Poloz Speaks

 

FRIDAY (6/12)

  • 8:30 AM ET - PPI - May
  • 8:30 AM ET – Michigan Sentiment - Jun

 

 

I wanted to add a little bit on Greece as we continue to see Greece kick the can down the road but it seems the can kicking may stop fairly soon. This past Friday, the Greeks didn't make their scheduled payment to the IMF and will bundle the payment with other payments due at the end of the month. This play is completely legal but shows the desperation by the Greeks as the situation is dire but Greece has few options.

From my CFA studying, we learned that for a government to get itself out of a recession, the administration has to do 3 steps.

1. Cut taxes

2. Increase government spending

3. Depreciate the currency

 

Greece has the capability of the first two, but because of their inclusion in the European monetary union, they have no control of depreciating their currency. If they were to bring back the Drachma, they could devalue that currency but at this juncture they are unable to do that.

The Germans and the rest of the EU have the Greek economy on life support with their previous bailouts but unfortunately won't pull the plug and kick them out of the currency. On the flip side, the Greeks do not want to give up their pensions owed to their workers and continue to expect handouts amid a continued dysfunctional tax collecting mechanism                             

But just like the US, Greek politicians made promises they obviously couldn't keep and are long gone from the political sphere and just pushed the problem on to somebody else. Well it's now been passed on enough and in which they've screwed the pooch (the Greek population) to keep receiving money for doing nothing. And you can't blame Europe for not wanting to support the Greeks way of life, and create an environment that doesn't support innovation.

So we will see in the next few weeks the outcome of the negotiations, but we all expect another band aid on a massive wound solving nothing. This will be in the form of temporary extensions which obviously solve nothing but kick the can, but the can kicking may be over as the Greeks are broke. In the words of Margaret Thatcher, ”The problem with socialism is that you eventually run out of other people's money"

 

 

Bonds, Bonds, Bonds

Intro: Investors will watch to see if the global bond sell-off we witnessed last week continues. On the economic front, we have a heavy week highlighted by, Retail Sales, PPI and University of Michigan Sentiment

Treasury Sell Off: In the previous week, Treasury’s spiked higher with the 30 year yielding more than 3% for the first time this year. Longer dated maturity Treasury’s witnessed the steepest decline over the week. If yields continue to climb, it will signal that the US economy is stronger and make the Fed rethink their timing on raising interest rates. Conversely, the rise in rates will negatively affect Utilities, REIT’s and other interest rate sensitive industries. However, the move upward may be a little late compared to what the Fed may be deciding for their June meeting.

Global Bond Sell Off: Also last week, we witnessed a major selloff of bonds across the world. Yields on 10 year German Bunds jumped from 0.059% to 0.79%. If we continue to see government yields increase, along with the price of oil increasing, concerns about deflation will start to subside. Furthermore, if yields continue to rise in Europe you could see potential talk of the ECB reevaluating their bond buying program. Any amendments to the bond buying program could affect global markets

Retail Sales: On Wednesday (5/13), Retail Sales are released. Should the figure come in better than expected, it would continue to signal an improving economy to the FED, indicating that the average US consumer can absorb an interest rate hike.

Greece: On Tuesday (5/12), Greece is due to make its next payment of €750 million to the IMF. If Greece is unable to make the payment and default’s on its debt, we have the potential for another global market sell off and further depreciating of the Euro. Also during the week, the Eurogroup has meetings in Brussels to discuss Greece and its reforms to stabilize its financial position. If the two sides are unable to come to an agreement, one of the outcomes could potentially be Greece leaving the European monetary union. The most likely outcome of the talks is another can kicking session without any concrete agreement

13F Filings: By this Friday (5/15), all institutions with $100M in assets under management have to file their 3/31 ownership positions. Should some well known investors declare new sizable positions in a certain company, you can expect that stock to have a bump higher.   

 

MONDAY (5/11)

  • National Australia Bank Business Confidence
  • Eurogroup Meetings
  • Bank of England Interest Rate Statement
  • Earnings: Actavis, Dish Network

 

TUESDAY (5/12)

  • 10:00 AM ET – JOLTS Job Openings - Mar
  • 2:00 PM ET – Treasury Budget - Apr -
  • Great Britain Manufacturing Production
  • FOMC Member John Williams Speaks
  • Earnings: McKesson

 

WEDNESDAY (5/13)

  • 8:30 AM ET - Retail Sales - Apr
  • 8:30 AM ET - Import/Export Prices - Apr
  • 10:00 AM ET - Business Inventories - Mar
  • 10:30 AM ET – Crude Oil Inventories
  • Reserve Bank of New Zealand Graeme Wheeler Speaks
  • China Industrial Production
  • German, French & Italian Prelim GDP
  • European Flash GDP
  • Great Britain Unemployment Rate
  • Bank of England Governor Mark Carney Speaks
  • ECB Monetary Policy Meeting Accounts
  • Earnings: Cisco, Macy’s

 

THURSDAY (5/14)

  • 8:30 AM ET - Weekly Jobless Claims
  • 8:30 AM ET – PPI – Apr
  • Swiss, German and French banks will be closed in observance of Ascension Day
  • Earnings: Applied Materials

 

FRIDAY (5/15)

  • 8:30 AM ET – Empire Manufacturing - May
  • 8:30 AM ET – Industrial Production – Apr
  • 8:30 AM ET – Capacity Utilization – Apr
  • 10:00 AM ET – Michigan Sentiment - May
  • Canada Manufacturing Sales