Thursday November 11 Daily Market Primer

The US market staged the most remarkable turnaround I have ever seen yesterday, with equities rising from a down limit -5% in the futures market on election eve to close up over 1% on post-election Wednesday.  We often tell clients that markets discount new information, and this is adaptation to the surprise Trump win is a perfect example, where markets recovered around in about 12 hours, even faster than the post-Brexit rebound.  It you want the play-by-play, read this http://bit.ly/MktThrillRide. Its also a reminder (not that we need one) that global capital markets are open 24/7, as market action can play out in the futures markets even when some exchanges are closed.  The VIX, which is more sensitive to downside than upside volatility, is down 4% to pre-election levels.  The International Energy Agency (IEA) is out with a new forecast predicting very heavy supply as more production continues to come on stream.  WTI is down to just under $45.  Among questions in play in the market are the fate of Janet Yellen, the path of Fed rate increases, health care policy, and especially trade policy.

The US 10 year bond yield us up over 2% this morning as the risk on trade pulls money out of treasuries and into stocks and other risk assets.  Inflation expectations may be heading up on Trump-talk about expansionary fiscal policy including infrastructure spending and tax cuts (last story).   Overnight, markets in Europe and Asia took the opportunity to reverse election day losses, and Japan was up 6.7%.  Wow.  US futures are indicating another day of Trump love, pointing up .5%.

	LAST	CHANGE	% CHG
DJIA	18,589.69	256.95	1.40%
Nasdaq	5,251.07	57.58	1.11%
S&P 500	2,163.26	23.70	1.11%
Russell 2000	1,232.16	37.02	3.10%
Global Dow	2,457.70	19.59	0.80%
Japan: Nikkei 225	17,344.42	1,092.88	6.72%
Stoxx Europe 600	341.32	1.51	0.44%
UK: FTSE 100	6,909.24	-2.60	-0.04%
CBOE Volatility	13.85	-0.53	-3.69%
Australia: S&P/ASX 200	5,328.80	172.20	3.34%
China: Shanghai Composite	3,171.28	42.91	1.37%
India: S&P BSE Sensex	27,517.68	265.15	0.97%
Singapore: Straits Times	2,834.09	44.21	1.58%
France: CAC 40	4,578.16	34.68	0.76%
Germany: DAX	10,704.98	58.97	0.55%
Italy: FTSE MIB	16,956.16	156.31	0.93%
Spain: IBEX 35	8,952.60	51.10	0.57%
U.S. 3 Month	0.439	-0/32
U.S. 2 Year	0.923	-2/32
U.S. 5 Year	1.524	-7/32
U.S. 10 Year	2.104	4 0/32
U.S. 30 Year	2.905	-1 2/32
Germany 2 Year	-0.621	-2/32
Germany 10 Year	0.313	-1 1/32
Crude Oil	44.94	-0.33	-0.73%
Brent Crude	46.26	-0.1	-0.22%
Natural Gas	2.799	-0.06	-2.10%
S&P GSCI	353.51	0.67	0.19%
E-mini S&P 500	2172	11.75	0.54%
Euro (EUR/USD)	1.1106	0.0082	0.74%
Yen (USD/JPY)	103.04	-2.13	-2.02%
Euro (EUR/USD)	1.0898	-0.0012	-0.11%
Yen (USD/JPY)	106.82	1.15	1.09%
Australia $ (AUD/USD)	0.7634	0	0.00%
Canada $ (USD/CAD)	1.3474	0.005	0.37%
Euro/Yen (EUR/JPY)	116.41	1.14	0.99%
Euro/Swiss Franc (EUR/CHF)	1.0763	0.0022	0.20%
Mexico Peso (USD/MXN)	20.2521	0.4103	2.07%
New Zealand $ (NZD/USD)	0.7203	-0.0077	-1.06%
Pound (GBP/USD)	1.2416	0.001	0.08%
Pound/Euro (GBP/EUR)	1.1393	0.0022	0.19%
Swedish Krona (USD/SEK)	9.0772	0.021	0.23%
Swiss Franc (USD/CHF)	0.9875	0.003	0.30%
Chinese Yuan (USD/CNY)	6.7994	0.0319	0.47%
WSJ Dollar Index	89.33	0.42	0.47%

It was a good day for the big banks, with Wells, JPM, and Morgan Stanley up over 3%.  The thinking is that a Trump administration (that will take some getting used to!) will ease up on financial regulation and possibly roll back Dodd-Frank.  Health care and biotech stocks were also on fire, with Allergan up 8%, Pfizer up 7%, and Mylan up 5%.  Now they can raise epi-pen prices to $1500 L.

Here’s the news:

Markets digest Trump

While the losing Democratic party faces tough questions after being roundly defeated this week, and triumphant Republicans look to a new era of political power, markets already seem to be adjusting. Banks, bonds and healthcare all had big moves yesterday as the winners and losers from the change of guard were sorted. On the streets of the U.S. there were protests as demonstrators declared they would refuse to accept the result.

Fed odds

One of the first places the new administration's weight might be felt is at the Federal Reserve, which had been expected by the vast majority of investors to hike rates at its December meeting. After initially falling to below 50 percent, the market-implied odds of a hike are back over 80 percent this morning, with Pimco warning that should Trump's policies prove inflationary, there may be a need for more rate rises over the medium term than previously forecast. Meanwhile, Goldman Sachs Group Inc. cut the chances of a December rate rise to 60 percent, from 75 percent.

Oil output

In its monthly report published this morning, the International Energy Agency predicted that crude prices may decline amid "relentless global supply growth" unless OPEC reaches a deal for significant output cuts. The IEA also raised its forecast for non-OPEC supply by 111,000 barrels a day to almost 500,000 barrels a day, with the increase led by Russian production. Oil futures, which had something of wild ride yesterday, are much more stable this morning, with a barrel of West Texas Intermediate for December delivery trading 20 cents lower at $45.07 a barrel as of 5:16 a.m. ET.

Stocks rally

Overnight, the MSCI Asia Pacific Index climbed 3.1 percent as stocks made up lost ground after ending the previous session close the nadir of the initial Trump selloff. In Japan, the Topix index closed 5.8 percent higher, while the Nikkei 225 added 6.7 percent. In Europe, the Stoxx 600 Index had gained 1.1 percent by 5:17 a.m ET, with banks leading the rally. S&P 500 futures added 0.9 percent.

Commodities surge

Goldman Sachs Group Inc. said that Trump's promise to rebuild American infrastructure means commodities used for those projects will benefit under his administration. Copper added as much as 3.9 percent to $5,625 a metric ton on the London Metal Exchange, while zinc futures in Shanghai climbed to the highest level since November 2010. Iron ore rallied to its highest level since January 2015. Stocks flirted with all-time highs on Wednesday. The Dow Jones Industrial Average crossed its record high on a closing basis of 18,613.52 and came within an eyelash of the all-time high of 18,636.05 set on August 15. The major average is set to open up in record territory on Thursday, up 0.6% at 18,721. Treasury yields haven't been this high since the beginning of the year. Aggressive selling on Wednesday ran Treasury yields up by more than 20 basis points at the long end of the curve and to their highest levels since January. That selling has carried over into Thursday's session with the 10-year yield up another 1 basis point at 2.06%. China's yuan was fixed at it lowest level in 6 years. The People's Bank of China fixed the Chinese yuan at 6.7885, its weakest since September 2010, amid worries President-elect Donald Trump could name China a currency manipulator, Bloomberg reports. New Zealand cut rates to a record low. The Reserve Bank of New Zealand lowered its benchmark interest rate 25 basis points to a record-low 1.75% as a result of weak inflationary pressures. The New Zealand dollar, commonly referred to as the kiwi, is down 0.3% at .7258 versus the US dollar. Yahoo warns that Verizon may back out of their deal because of the massive data breach. In the "risk factors" portion of its quarterly filing disclosed on Wednesday, Yahoo said: "Verizon may assert, or threaten to assert, rights or claims with respect to the Stock Purchase Agreement as a result of facts relating to the Security Incident and may seek to terminate the Stock Purchase Agreement or renegotiate the terms of the Sale transaction on that basis." Shake Shack beats. The burger chain earned $0.15 a share on revenue of $74.6 million and said it expected full-year same-shack sales growth of 2% to 3%. Shares of Shake Shack are up by 8% ahead of the opening bell. Mylan whiffs. The maker of the EpiPen announced a net loss of $119.8 million for the third quarter because of a proposed $465 million settlement with the US Department of Justice and other government agencies. Stock markets around the world are higher. Japan's Nikkei (+6.7%) led the gains in Asia, and France's CAC (+1.3%) paces the advance in Europe. A New Political Order Eight hours after President-elect Donald Trump claimed victory, Hillary Clinton delivered a formal concession speech on Wednesday morning in New York. She called her loss “painful” but urged the country to accept Mr. Trump as the next president. Meanwhile, President Barack Obama invited his successor to the White House, where Mr. Trump is expected on Thursday, and promised a “smooth transition” to a Trump administration. And with that, having dispatched the Bush and Clinton political dynasties in his White House run, Mr. Trump has reshaped what it means to be a Republican, leaving some longtime party officials scrambling to find their places in a new political era. Republicans in Washington and across the country, including House Speaker Paul Ryan, are beginning to adopt the Trump agenda as their own. Party leaders are targeting sweeping changes and moving quickly to take advantage of their control of the White House and both chambers of Congress next year. Major goals include repealing Mr. Obama’s signature health-care law, cutting taxes and rolling back regulations, especially those dealing with the environment. The Winning Coalition Mr. Trump did what many leaders of his own party said couldn’t be done: He won a national election by drawing a larger share of the nation’s white voters. Though the white share of the voter pool declined, as expected, Mr. Trump won those voters by a 21-percentage-point margin, exit polls showed, up from Mitt Romney’s 20-percentage-point margin in 2012. That gave Mr. Trump a winning hand, partly because Mrs. Clinton couldn’t match Mr. Obama’s vote totals in Philadelphia, Detroit and other metropolitan areas that Democrats typically rely on. The result: Mr. Trump won the formerly Democratic Upper Midwest while winning working-class whites nationwide by 41 percentage points, up from his party’s already-formidable 26-point advantage four years ago. The Democratic coalition that twice propelled Mr. Obama to the White House—minority voters, young voters and segments of affluent whites—remains intact. And yet it didn’t come out in Obama-sized numbers. Market Switchbacks After some initial jitters, investors embraced Mr. Trump’s election, snapping up stocks and selling bonds in a bet that the Republican’s plans for fiscal stimulus will succeed in breaking the U.S. out of a postcrisis economic funk. The Dow Jones Industrial Average posted its second large gain this week, led by a rally in financial, pharmaceutical and engineering firms. Meanwhile, the yield on the 10-year U.S. Treasury note surged to 2.07%, its highest level since January. The action shows that after months of either playing down the likelihood of a Trump presidency or selling shares in a defensive reflex when Mr. Trump rose in pre-election polls, investors are welcoming the prospect that expansive fiscal spending under the Trump administration could bolster economic activity, push up inflation and support higher bond yields in coming years. Bank stocks also rose sharply on the prospect of stronger growth and less regulation. Meanwhile, U.S. businesses are bracing for revamped trade pacts and a potential crackdown on overseas operations, coupled with the promise of lower taxes, lighter regulation and higher infrastructure spending at home. Trump's election prompts global economic uncertainty Trump (Joe Raedle/Getty Images) The US elected Donald Trump as president on the vow that he'd put America first, but his lack of specifics on trade and other issues has caused uncertainty about the global economy. "We simply can't know what type of president Trump will be," said Paul Ashworth at Capital Economics. The Register-Guard (Eugene, Ore.)/The Associated Press (10 Nov.),  Time.com (09 Nov.),  Deutsche Welle (Germany)/Agence France-Presse/Deutsche Press-Agentur/Reuters (09 Nov.),  Reuters (10 Nov.)   McConnell rules out TPP vote this year McConnell (Zach Gibson/Getty Images) President Barack Obama's Trans-Pacific Partnership trade deal has no chance of a vote during the lame-duck session, says US Senate Majority Leader Mitch McConnell. "It's certainly not going to be brought up this year," McConnell said. Reuters (09 Nov.),  Politico (09 Nov.)  Earnings reporting slows down a bit. Kohl's, Macy's, Michael Kors, and Ralph Lauren are among the companies reporting ahead of the opening bell, while Nordstrom and Walt Disney highlight the names releasing their quarterly results after markets close. US economic data is light. Initial jobless claims will cross the wires at 8:30 a.m. ET.

Icahn left Trump's victory party to bet $1 billion on stocks.

Stock forecasters have proven to be no better than pollsters in figuring out Trump.

Investors are betting that Trump will be the inflation president...

... While Bill Gross says the victory won't lead to more economic growth.

Here's one sign that markets believe in Trump's "America First" policy.

And the Mexican peso's nightmare may just be getting started. Donald Trump’s Win Underscores Divide in Global Economic Order A New President, a New Era of Uncertainty for the Fed Election Result Goes Down Hard in Mexico Populist Victory Raises Questions Abroad Nov. 8 Result Seen as a Blow to Silicon Valley How the Media’s Election Predictions Badly Missed the Mark Afraid of What Comes Next for the Markets and Economy? Read This Donald Trump’s Financial Advisory Team Stocked With Wall Streeters

It's been a good 48 hours if you like to bash the experts. Not only did experts get the election result totally wrong, they got the market reaction wrong too as stocks are still surging. The most interesting thing, however, is not what's going on in equities, but what's going on in interest rates and inflation expectations. U.S. 10-year yields are above 2 percent, their highest level since January as markets expect Trump to be fiscally liberal and drive up inflation. As some have joked already, President-Elect Trump has done more to revive inflation expectations than Ben Bernanke, Janet Yellen, Mario Draghi, and Haruhiko Kuroda have combined. That's an exaggeration of course, but if you think that inflation is essentially the domain of central banks and that fiscal policy is impotent in the face of deflation, then the market's reaction to the election should give you some pause. The economist Lars Christensen writes that investors are betting that Trump will be an unreconstructed Keynesian and that there won't be an aggressive monetary offset from central banks - at least for now. There could, however, be trouble down the road if inflation were to truly run so "hot" that the Fed felt the need to take action in order to retain its credibility and its mandate. Christensen warns - and not without good reason - that: "Knowing Trump’s temperament and persona that could cause a conflict between the Fed and the Trump administration."

Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, Reuters, Politico, The Register-Guard, AP,  Time.com,  Deutsche Welle, Agence France-Presse/Deutsche Press-Agentur