Sentiment in the driver seat

The markets took us for a wild overnight ride.

Donald Trump
Source: Bloomberg

Key markets such as US equity indices and USD/JPY staged reversals that more than wiped off yesterday’s initial reactions towards a surprise win by the newly minted President-elect, Donald Trump.

The S&P 500 index closed with 1.11% gains on Wednesday, touching a fresh high since September 30 at 2170.10, a situation we have previously reserved for a Democratic win. This sees the index breaking above the 100DMA of 2147.24.

Strong gains in the country’s stock index typically reflects the market’s confidence in the growth of the economy. In the lead up to the elections, the equity market had instead been primarily sentiment driven.

While yesterday’s escape to safe havens was hinged on the surprise result and fear of the volatility that a Trump Presidency may bring, the rally overnight was likely focused on the expansionary policies the President-elect had spoken of on his campaign trail. An inclusive and growth-focused victory speech, coupled with the pouring in of congratulatory words from world leader that broadly reinforces the ties with the US, boosted the market’s confidence as well.

Nevertheless, clarity has yet to be achieved and while this could be an enduring pursuit, further insights into the Trump administration’s economic plans would be key feeds for the market. 

 

Asia outlook

We recall the strong sell-off for Asian markets yesterday. With the strong rebound in markets, early movers including the KOSPI and TAIEX shot up with at least 1.50% gains when last checked at 01:15 (GMT). The Nikkei likewise reversed back to trade above 17000 with USD/JPY currently eyeing the $106.00 level.

The outlook certainly appears mixed for Asian markets. On one hand, President-elect Donald Trump had been relatively clear in his stance towards China, suggesting trade tariffs and ‘currency-manipulator’ brandings. The realisation of policies along these lines could see a domino effect on the rest of Asia.

On the other hand, his commitment towards invigorating economic growth in the US could, as illustrated in his victory speech, could help to boost growth for the rest of the world. For the day ahead, Asian markets look set for gains with the strong leads in store.

 

Yesterday: S&P 500 +1.11%; DJIA +1.40%; DAX +1.56%; FTSE +1.00%

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