The Trump Aftermath

Key Points:

  1. The S&P 500 Index got within two points of its August 15 record
  2. Russell 2000 Index posted its longest winning streak since 2003.
  3. Nasdaq Composite Index rose to its first all-time high since September
  4. Thanksgiving shortened week ahead
  5. Commodities slammed on USD strength

Chart of the Week


US

The S&P 500 Index got within two points of its August 15 record of 2190.15. The gauge capped a weekly gain of 0.8 per cent. The Dow Jones Industrial Average slipped, while the Russell 2000 Index posted its longest winning streak since 2003. The Nasdaq Composite Index rose to its first all-time high since September before trading little changed. "The markets are looking at the potential of a Trump stimulus," said Andrew Brenner, the head of international fixed income for National Alliance Capital Markets.  "They're thinking the US is going to do well, but the problem is that the dollar is going out of control to the upside."

As for the Thanksgiving shortened week ahead, the Fed's November meeting minutes are out Wednesday (6am Thursday AEDT). Also this week are durable goods orders, jobless claims and new home sales. US markets will be closed on Thursday and trading is expected to be subdued on Friday as many market participants opt for a long weekend. After tussling for years to win customers, the two biggest US companies in fantasy sports, DraftKings and FanDuel, said they are teaming up in a merger that will cut down on legal bills and advertising spending.

Europe

The Stoxx Europe 600 Index produced a weekly gain of 0.6 per cent. The European Central Bank president said the recovery isn't strong enough yet and the current level of monetary support is key. Miners declined with metals, while bond proxies such as utilities and telecom companies dropped as global bonds headed for their biggest two-week slide in at least 26 years.

Equity ETFs received record inflows in the week ended November 16, with $US800 million going into European funds, a Bank of America report showed. Those tracking the financial industry got the most money ever, while bond funds saw their biggest withdrawals in 3 1/2 years.  

Asia

The MSCI Asia Pacific Index retreated 0.9 per cent for the week in Hong Kong. Japan's Nikkei 225 Stock Average entered a bull market, while the Topix index closed more than five points short. The Nikkei 225 advanced 0.6 per cent on Friday, and is now up more than 20 per cent from a June low, meeting the common definition of a bull market. The Topix notched up a weekly gain of 3.6 per cent. A weaker yen has buoyed exporters, while Japanese lenders have benefited from a rebound in global borrowing costs. Hong Kong's Hang Seng Index rose for the first time in three days, the Shanghai Composite Index dropped and the Jakarta Composite Index led declines in Southeast Asia.

Australia

The $A is poised for further losses after it shed near 1 per cent on Saturday morning, reflecting a pullback in the price of iron ore. Also hurting the $A was a pullback in the price of gold, copper and nickel. The slide in metals prices knocked mining stocks lower in London and New York. Rio Tinto slid 2.7 per cent in New York; BHP Billiton lost 1.2 per cent.

Currencies

The US dollar advanced 0.5 per cent to $US1.0573 per euro on Friday in New York, and reached the strongest level since December. The US currency added 0.6 percent to 110.80 yen, on track for a two-week advance of more than 7 per cent, the biggest since 1999. The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, reached the highest since January. The gauge added 1.9 per cent last week.

Capital Economics: "Mexico hiked its policy rate by 50bp on Thursday, to 5.25 per cent, in an effort to support the peso. We expect another half-point increase at December's meeting and think that further hikes are likely next year too."

Commodities

Iron Ore lost 1 per cent to $US72.79 a tonne on Friday, taking the week's loss to 8.8 per cent, the most since the period to May 6, according to Metal Bulletin Ltd. In Singapore, SGX AsiaClear futures slumped 15 per cent on the week, while futures in Dalian fell 10 per cent. "After Chinese exchanges took steps to suppress market speculation, there's been a massive pullback" in prices, Fan Lu, an analyst at Sinosteel Futures, said in a note on Friday. "We expect the volatility in iron ore to prevail in the short term."

Brazil's government has decided to push for a new chief executive for iron-ore giant Vale. President Michel Temer ceded to months of lobbying from members of his own Democratic Movement Party to seek a replacement for Murilo Ferreira. His contract ends at the end of April.

Oil caped the first weekly gain since mid-October after OPEC member Algeria said the group's meeting with Russia gave it confidence a deal can be reached to re-balance global markets. The global benchmark crude rose 4.7 per cent last week. Brent closed at a 50-cent premium to January WTI.

Copper on the London Metal Exchange ended the week down 2 per cent at $US5423 a tonne.


Read

  1. How Two Trailblazing Psychologists Turned the World of Decision Science Upside Down
  2. China’s Great Leap Backward. The country has become repressive in a way that it has not been since the Cultural Revolution. What does its darkening political climate—and growing belligerence—mean for the United States?
  3. Aftermath: Sixteen Writers on Trump’s America. Essays by Toni Morrison, Atul Gawande, Hilary Mantel, George Packer, Jane Mayer, Jeffrey Toobin, Junot Díaz, and more.
  4. ‘We Couldn’t Believe Our Eyes’: A Lost World of Shipwrecks Is Found. Archaeologists have found more than 40 vessels in the Black Sea, some more than a millennium old, shedding light on early empires and trade routes.
  5. Airbnb Wants to Go Beyond Home-Sharing With Debut of 'Experiences'

Clean the Decks: EOFY Tax Loss Selling

Coming into end of financial year, today we look at tax loss selling and why it may affect the Australian market. This comes as investors crystalize capital losses before the end of the Australian tax year. Institutions clean their books and in some cases completely dump a holding so they don't own it by 30 June. Often fund managers will dump stock, so when they publish their annual report showing the fund holdings, so investors/clients won't focus on a bad holding. Coming into the start of June this week, we could see a significant tax loss especially across the ASX200 large cap stocks. Some brokers are beginning to highlight stocks of the ASX200 index that are candidates for tax-loss selling. 

The average fall of these stocks is 15% since the start of the financial, so it's quite significant for large caps. Some names that spring to mind include; ANZ, NAB, BHP, WOW, MQG, WPL, RIO, ANN and so on. These stocks could be sold off significantly over the next 3 weeks, which will result in a decent hit to the index.

Hedge funds which come in June short will often do well. Quantatative studies show that shorting potential tax-loss selling stocks during late May has generated positive alpha in 18 out of the past 20 years. This is going to have an impact on the market from; 1) institutions selling tax loss stocks; 2) retail investors selling tax loss stocks; 3) hedge funds shorting tax loss stocks.

Woolworths' Masters debacle: Lessons for anyone in business

Woolworths' Masters debacle: Lessons for anyone in business

The debacle Woolworths have created with Masters hardware provides lessons for anyone in business. Much has been said about Woolworths failure to execute the roll out of the Master stores. While execution of your strategy is often the difference between success and failure, in this case the real lessons are more difficult to see.