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The Trump speed bump

The Trump bump may have hit the Trump speed hump in overnight market moves, with market participants not having seen the details for the proposed tax cuts or the details behind the infrastructure spending plan.

Market Data
Source: Bloomberg
This is the poorest outcome from an investment market’s perspective, as rising doubts lead to sell orders flowing into trading houses facing a lack of buyers. The breadth of losses include the KBW bank index; a weighting of 24 financials falling 4% in the US session. It’s the largest move since June 2016 and the markets biggest fall since October 2016.

The flow to safety can be seen with a rally in the lower volatility utilities sector, as it traded sharply higher by 1.3%. The other risk off flow showed up in the bond markets with falling US 10 year yields trading 4 basis points lower at 2.41% .

Add to the concerns around the air of risk off in the equities markets, as they look for further catalysts from President Trump. His approval rating has fallen to a new low and remains lower than Obama’s at the end of his presidency. Trump also took aim at his own party, warning members not to vote against the new healthcare bill. This has left observers raising questions about his focus, which is not on the business-friendly policies that lead to his popularity.

The question every market participant will be wrestling with today, is whether this is the top of the equities move for 2017 or does this pull back offer a buying opportunity. The recent US reporting season saw forward earnings per share growth that are still projected to a solid 16% for 2017. Traders are now starting to question this growth projection as the Dow and S&P 500 find solid resistance below the 21,000-point peak set during Trump’s address to congress.

The US dollar denominated markets have taken the fall, with the US dollar index tumbling below the key 100 level for the first time. Technical traders now have a major reversal pattern that has taken several months to complete and warning of further weakness.

A measure of the weakness is the USD/JPY also falling 0.9% as the exodus from long US dollar positions gain momentum. Of course, the benefit of this uncertainty is the gold market trading at $1244.00oz This has the gold bulls looking for the key trading level to be held in the coming weeks.
 
For the Australian markets today it’s going to be a tough start with the futures pointing to a 48 point lower opening. Expect the gold producers to gain a bid today as the Aussie dollar price of gold remains above the key $1600oz level. The resource sector looks to be under pressure, with most commodities trading lower. Oil breaking below the key $48 level will bring further selling to the producers WPL and OSH.

American depository receipts (ADR) for BHP show a 2% discount from yesterday’s close.

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