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‘Trump the negotiator’, with a rational bottom line and a lifetime of business experience, is now dealing with a political process that has a vastly different operational model. He has certainly looked out of his depth at times, but slowly things are shaping up.
This development will interest the market participants greatly, as the proposed tax cuts will now have a legitimate way of being funded (if passed in the Senate). And just in time, as the whole process has been the Presidents Achilles heel since taking office.
One very unflattering statistic shows President Trump has now made over 400 unsubstantiated claims in his mere three months as president, now with a growing disregard of the Tweets and statements becoming just back ground noise.
The markets at this stage are far more focused on the super strong earnings growth that is being reported, justifying the current run up in the S&P 500, which last night settled at 2389 points. Although this is still below the all-time high of 2401 points set on 1 March. With the S&P 500 trading within closing range of just seven points in the past eight trading sessions, so the market, it seems, may be waiting for the next catalyst to fuel the current bullish rally.
Overnight, we saw further information around the US labour market, with U.S. employers announcing plans in April to cut 36,602 jobs. This is a 15% decrease from the planned layoff in March, according to outplacement consultancy Challenger, Gray & Christmas. This statistic, along with good numbers in this week’s ADP payrolls bode well for the non-farm payrolls number for April, being reported tonight, which is expected to show a gain of 190K.
Importantly, the recent soft data patch we have seen in Q1 may suggest the market will be quite sensitive to a miss in this jobs report and a number below 140,000 may ultimately shake the confidence of the bulls in the short term.
In the Asian region, commodities have again taken the lime light for all of the wrong reasons overnight with Brent falling to $48.38 a barrel and West Texas intermediate contract moving to $45.46, -5%. These levels have taken the commodity back to November levels where the Organisation of the Petroleum Exporting Countires (OPEC) production cuts were agreed upon in November.
The S&P energy sector moved 1.9% lower, and this will be reflected in the Australian equity market today. It appears bullish sentiment has been broken in a market that held a net long position in the commodity, all the while expecting a further rally back to the OPEC target zone of $65 a barrel.
I would expect further weakness in the Australian market today, although the SPI futures are showing a modest open down seven points. Iron ore have moved 5% lower yesterday in Asian trade, with iron ore futures also smashed in overnight trade and this has reflected in US-listed Vale trading 4.9% lower.
While the Australian bulk producers FMG, along with BHP and RIO were marked down yesterday, American depository receipts (ADR), have BHP opening down a further 1.8% in today’s market.
It seems the much talked about 6000 point target for the Aussie 200 may again be a bridge to far, this week’s bank reporting has come in line with expectations and the recent rally has seen significant profit taking with ANZ moving back to the $30 level last seen mid-February.
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