The Overnight Report: Trading Trump 2.0 vs China

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US equities are having a mixed start to the new week with big tech on the back foot while small caps and Banks are higher, economists at NAB observe.

Commodities and offshore China stock have expressed disappointment to China’s lacklustre stimulus announcement. AUD starts the new day at 0.6572.

World Overnight
SPI Overnight	8291.00	+ 4.00	0.05%
S&P ASX 200	8266.20	– 28.90	– 0.35%
S&P500	6001.35	+ 5.81	0.10%
Nasdaq Comp	19298.76	+ 11.99	0.06%
DJIA	44293.13	+ 304.14	0.69%
S&P500 VIX	15.03	+ 0.09	0.60%
US 10-year yield	4.31	– 0.04	– 0.81%
USD Index	105.41	+ 0.52	0.50%
FTSE100	8125.19	+ 52.80	0.65%
DAX30	19448.60	+ 233.12	1.21%

By Chris Weston, Head of Research, Pepperstone

Good morning.

The central theme stemming through markets has again been expressing Trump 2.0, with this evolving thematic working concurrently with the sell China vibe that resonates, with further fallout from the lack of demand-driven policies detailed at Friday’s China’s NPC meeting.

Tesla intraday price action  

Tesla trades a similar dynamic to crypto and is the other big winner from the US election.

On the day, the share price sits +8%, extending its rise since the election to 42%, although this impressive percentage change masks the intraday volatility that has seen day traders having to be dynamic throughout the US cash equity session.

A look at the set-up on the daily and the indecision portrayed suggests Tesla may have reached an inflection point one that will need to be resolved in the session ahead.

US banks and Tesla finding the love

The S&P500 is largely unchanged but digging below the surface we see US financials feeling the love, with both the larger US financial institutions and money centres pushing higher, with green liberally seen on screen, while smaller and regional banks outperform (the KRE ETF is +3.4%).

Tech takes a backseat, with Nvidia, Apple and Microsoft lower on the day, with funds switching further into value areas of the market. 

Small caps outperform with the Russell 2k +1.5% and are now just a whisker away from the all-time record printed back in November 2021. 

Materials and energy names have underperformed, with both sectors trading lower on the day, and that may filter through to the ASX200 on open, where there’s been a noticeable liquidation of long positions in gold, copper, and crude.

Gold miners have been heavily impacted, where we see the GDX ETF -5.7%.

Gold’s foundations built on shaky ground

The selldown in gold is certainly catching the attention of clients where flows on the day have been significant I’d argue this is partly technical, with the gold price breaking below both the 7 November low (US$2643.47) and the 50-day MA, resulting in systematic trend-following and momentum funds covering long positions.

Some throw up the notion of market players switching from gold into crypto, although I am a sceptic on that view, and lean more to the camp that the gold move is USD related, with perception of China reducing demand for gold the strong (inverse) relationship on the day between gold and USDCNH offering some belief in the call. 

In FX markets, the USD has been the play and while longs may not be getting the same sort of underlying momentum seen in crypto and Tesla, we also need to consider that the USD has incredibly different liquidity dynamics and the range of market participants are also very different.

AUDUSD, NZDUSD and USDCAD are largely unchanged on the day, and holding in well given the moves in commodity and energy markets.

Event risk for the session ahead

 As we turn to what should be a flat open for the ASX200, we look at the risk events for the radar and to navigate in the session ahead.

In Australia, neither the Westpac consumer confidence nor NAB business confidence will impact equity or the AUD to any great degree.

In the US, we get the Senior Loan Officer’s survey (06:00 AEDT), which will offer the market a chance to see recent credit conditions, although it feels like the prospect of volatility from this report is low.

We also get speeches from a number of central bankers, including BoE chief economist Pill, ECB members Holzmann and Fed gov Waller.

On the calendar today:

-NAB business confidence

-Westpac Consumer Confidence

-Japan Oct machine tool orders

-UK Sept Unemployment rate

-Coles Group ((COL)) AGM

-GQG Partners ((GQG)) ex-div 3.71c

-Lifestyle Communities ((LIC)) AGM

-Nanosonics ((NAN)) AGM

-Platinum Asset Management ((PTM)) AGM

-Star Entertainment ((SGR)) AGM

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

Corporate news in Australia:

-Regional Express ((Rex)) has been offered an $80m lifeline by the federal government to keep running regional routes

-HMC Capital ((HMC)) is acquiring iseek for -$400m to help launch its DigiCo REIT on the ASX, aiming to raise $2.6bn in equity by year-end

-Financial Times reports Trump 2.0 threatens to unravel the OECD’s global tax deal as experts warn countries may back off enforcing corporate minimum taxes for fear of US retaliation

-Persistent rumours Foxtel ((NWS)) is for sale

Spot Metals,Minerals & Energy Futures
Gold (oz)	2629.35	– 65.45	– 2.43%
Silver (oz)	30.84	– 0.61	– 1.93%
Copper (lb)	4.25	– 0.06	– 1.41%
Aluminium (lb)	1.16	– 0.03	– 2.13%
Nickel (lb)	7.24	– 0.11	– 1.49%
Zinc (lb)	1.34	– 0.01	– 0.44%
West Texas Crude	68.20	– 2.18	– 3.10%
Brent Crude	71.96	– 1.91	– 2.59%
Iron Ore (t)	103.82	0.00	0.00%

From ANZ Bank:

Crude oil prices extended last week’s losses as a surging USD dented investor appetite.

The policy platform Trump has spruiked during campaigning looks set to add to the budget deficits over his second term.

The financial market reaction, including strong gains across equity markets and the USD, suggests his policies will be positive for growth but negative for inflation.

Concerns also emerged over demand in China. Data released over the weekend showed anaemic consumer inflation in October and another decline in factory gate prices.

The recent bearish sentiment is in stark contrast to the days leading up to the US election, when investors were buoyed by OPEC’s decision to push back an anticipated production hike amid a flare up in the Middle East conflict.

The market is now looking ahead to the release of monthly oil market reports from OPEC, the International Energy Agency and the Energy Information Administration. Any further downgrades on demand, particularly from OPEC could weigh on sentiment.

The stronger USD also weighed on the base metal markets. Copper led the sector lower, as investor appetite waned.

This wasn’t helped by disappointment over China’s much anticipated stimulus package.

The world’s biggest metals importer unveiled a USD1.4bn program to restructure local government debt. However, it stopped short of delivering new stimulus.

Beijing may be keeping its powder dry for any possible escalation of the trade war with the US next year. China’s finance minister, Lan Fo’an, promised “more forceful” fiscal policy next year. Zinc prices briefly spiked after the London Metal Exchange reported the biggest drop in readily available stockpiles since December.

A lack of further support for China’s property market also weighed on the iron ore market and was exacerbated by signs of weak demand.

Port holdings of iron ore in China have expanded for the past four weeks to be at their highest level since early September.

Gold fell to a one month low as traders booked profits after the recent strong gains.

Bullion slumped more than -2.5% to trade around USD2,615/oz as the stronger USD crimped investor demand. The prospect of fewer interest rate cuts from the Fed is also weighing on demand.

The Australian share market over the past thirty days

Index	11 Nov 2024	Week To Date	Month To Date (Nov)	Quarter To Date (Oct-Dec)	Year To Date (2024)
S&P ASX 200 (ex-div)	8266.20	-0.35%	1.30%	-0.04%	8.90%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ANZ	ANZ Bank	Downgrade to Reduce from Hold	Morgans
		Downgrade to Neutral from Buy	UBS
DHG	Domain Holdings Australia	Downgrade to Hold from Buy	Bell Potter
		Downgrade to Neutral from Buy	Citi
PME	Pro Medicus	Downgrade to Neutral from Outperform	Macquarie
RDX	Redox	Downgrade to Hold from Accumulate	Ord Minnett
WEB	Web Travel	Downgrade to Underweight from Equal-weight	Morgan Stanley

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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