Wednesday November 9 Daily Market Primer Post Election Position

Its over, so much for polls and prediction markets.  Everyone take a deep breath.  In a truly shocking but not all that improbable event, the US elected Donald Trump President last night, surprising pollsters, analysts, and markets around the world.  Republicans kept control of congress, with at least 51 seats in the Senate and 236 (vs 191 for the Dems) in the House. Markets were caught unprepared after a rally in risk assets Monday and Tuesday lifted the US stock market by about 2.5% and strengthened the dollar, both of which were more than undone in futures and currency markets last night starting around 8:00pm Central, as equities and the dollar tanked, oil dropped, gold and silver rose 2%, and yields fell.   Markets are adjusting quickly, and US equity futures are down only 1.7%, from 5% at the low last night, but are bouncing around as I write this, treasury yields are back to at or above levels just before the election, and the WSJ US dollar index is down less than 1%.  Remarkably, the VIX is only up 6% over yesterday’s level, which is not even a spike by historic standards. European markets, perhaps better prepared for surprises after Brexit, did not buy in to the US selloff, and are generally down less than 2%.  Asian markets are taking it harder, with Japan down over 5% and China down 3.6%.

As of 3:45 AM Mountain Time (US mkts – 1^st 4 lines – reflect Tuesday’s close)

	LAST	CHANGE	% CHG
DJIA	18,332.74	73.14	0.40%
Nasdaq	5,193.49	27.32	0.53%
S&P 500	2,139.56	8.04	0.38%
Russell 2000	1,195.14	2.89	0.24%
Global Dow	2,403.83	13.72	0.57%
Global Dow	2,421.12	-19.97	-0.82%
Japan: Nikkei 225	16,251.54	-919.84	-5.36%
Stoxx Europe 600	332.54	-2.37	-0.71%
UK: FTSE 100	6,820.68	-22.45	-0.33%
CBOE Volatility	19.80	1.06	5.66%
Australia: S&P/ASX 200	5,257.80	7.00	0.13%
China: Shanghai Composite	3,125.32	-3.62	-0.12%
India: S&P BSE Sensex	27,591.14	132.15	0.48%
France: CAC 40	4,457.76	-3.45	-0.08%
Germany: DAX	10,440.34	-16.61	-0.16%
Italy: FTSE MIB	16,687.72	-49.03	-0.29%
Spain: IBEX 35	8,884.40	-34.40	-0.39%
U.S. 3 Month	0.414	0/32
U.S. 2 Year	0.826	2/32
U.S. 5 Year	1.33	-0/32
U.S. 10 Year	1.919	-17/32
U.S. 30 Year	2.751	-2 17/32
Germany 2 Year	-0.645	1/32
Germany 10 Year	0.169	6/32
Crude Oil	45.04	0.06	0.13%
Brent Crude	46.14	0.1	0.22%
Natural Gas	2.792	-0.018	-0.64%
S&P GSCI	350.49	-1.26	-0.36%
E-mini S&P 500	2099.5	-36	-1.69%
E-mini DJIA	17978	-307	-1.68%
Euro (EUR/USD)	1.1106	0.0082	0.74%
Yen (USD/JPY)	103.04	-2.13	-2.02%
Australia $ (AUD/USD)	0.7669	-0.0094	-1.21%
Canada $ (USD/CAD)	1.3404	0.0116	0.87%
Euro/Yen (EUR/JPY)	114.44	-1.52	-1.31%
Euro/Swiss Franc (EUR/CHF)	1.081	0.0029	0.27%
Mexico Peso (USD/MXN)	19.9928	1.6711	9.12%
New Zealand $ (NZD/USD)	0.7306	-0.0079	-1.07%
Pound (GBP/USD)	1.2419	0.0039	0.32%
Pound/Euro (GBP/EUR)	1.1185	-0.0046	-0.41%
Swedish Krona (USD/SEK)	9.0146	0.025	0.28%
Swiss Franc (USD/CHF)	0.9732	-0.0047	-0.48%
Chinese Yuan (USD/CNY)	6.776	-0.0087	-0.13%
WSJ Dollar Index	87.92	-0.1	-0.11%

• At times like this its is important to separate the personal, social and political dimensions of the event from the market dimensions.  While related in the short term, in the long term markets and economies behave based on fundamentals which change much more gradually.   If your party or candidate lost, keep those emotions seperate from your action around portfolios and markets.
• Markets react to uncertainty, but the day after election returns don’t predict anything.  Here are the day after S&P returns for the last four elections: 

Obama 2012: -2.4%

Obama 2008: -5.3%

Bush 2004:    +1.2%

Bush 2000:     -1.6%

• While this may provide a good opportunity to reevaluate risk preferences, today is not the day.  My long experience in managing assets has shown that it is a mistake to sell into falling markets.

Here’s the news:

President-Elect Trump

Donald Trump was elected the 45th president of the United States in a stunning victory, beating his opponent Hillary Clinton as well as a raft of pre-election polls. Following a divisive campaign, U.S. President-Elect Trump called for Americans to come together in a conciliatory victory speech. The GOP also kept control of both the Senate and the House, giving the party greater freedom to implement its policy platform.

Dollar moves

As counting went on, and the increasing likelihood of a Trump win became clear, there were some large moves in currency markets. The Mexican peso was hit hardest, plunging as much as 12 percent before recovering some losses to trade 9 percent lower at 20.075 to the dollar at 5:02 a.m. ET. Against major currencies, the story was one of initial weakness, with the U.S. dollar plunging against the euro, yen and Swiss franc as results rolled in. By 5:00 a.m. ET, however, many of those moves had unwound, with only the 1.6 percent drop against the yen the remaining sign of dollar fragility. Market-implied odds of a Federal Reserve rate hike in December, which had been as high as 84 percent yesterday, dropped below 50 percent in early trading.

Markets whipsaw

Global equity markets have been on something of a wild ride as investors digested the election results. At one stage overnight, S&P 500 futures halted trading after dropping 5 percent, while Nasdaq 100 futures lost 5.1 percent and Dow futures were off 4.3 percent. In Japan, the Topix index closed 4.6 percent lower and the yen strengthened as trading volumes surged. European markets are faring better, with the Stoxx 600 Index recovering earlier losses to trade 0.6 percent lower at 5:09 a.m. ET and pressure on banks and automakers offset by a rally in health-care stocks. S&P 500 futures are also recovering, paring earlier losses to a 1.6 percent decline.

Commodities join the confusion

A barrel of West Texas Intermediate for December delivery dropped by as much as $1.91 to $43.07 overnight, but was trading down 17 cents at $44.81 by 5:24 a.m. ET. Gold also saw large moves, at one stage gaining more than $60 an ounce to $1,337 before falling back to trade 2 percent higher at $1,302 by 5:37 a.m. ET. The moves in commodities were reflected in markets across the world, from green energy to shipping and Chinese equities.

In other news..

In the U.K., the Bank of England said that business investment may stagnate, at best, over the coming year, while the body that manages the country's nationalized banks is facing questions over the sale of a 13 billion-pound ($16 billion) portfolio of mortgages. In some good news for the British economy, the trade deficit in goods and services narrowed to 11 billion pounds ($13.7 billion) in the third quarter. Donald Trump wins. Trump overcame substantial odds to pull off what may be the greatest political upset in history. Trump leads the electoral college by a margin of 289 to 218 (270 needed to win) with three states still undeclared. At the moment, Democratic nominee Hillary Clinton holds a razor thin lead in the popular vote. HSBC says a US recession is coming. Kevin Logan, the bank's chief US economist says that Trump's tax cuts might help in the short run, "the combined supply shock from a contraction in the labor force and from a disruption to international trade would likely put the economy into a recession after a year or two." US stock futures are making a comeback. Dow futures tumbled more than 800 points in overnight trade, but have rallied well off their worst levels, currently trading down 360 points at 17,924. Meanwhile, the S&P 500 hit circuit breakers after a 5% drop, and are now off 2.3% at 2,087. Stock markets around the world are mixed. Japan's Nikkei and Hong Kong's Hang Seng were hit hard overnight, booking respective losses of 5.4% and 2.2%. In Europe, markets have stabilized after witnessing big drops at the open. Britain's FTSE tumbled more than 2%, but now sports a loss of just 0.3% and Spain's IBEX has climbed into positive territory with a gain of 0.2% Treasurys have staged a massive reversal. Aggressive buying pushed yields down as much as 17 bps in the belly of the curve, but things have turned around, especially at the long end where the 30-year yield is higher by 13 basis points at 2.75%. The dollar is taking a hit. The greenback is lower against most of its major peers with losses ranging from 0.6% against the British pound to about 2% against the Japanese yen. The Mexican peso is getting slammed. The peso hit a record low 20.7818, down more than 13%, when Trump took control in key battleground states. However, it has since rallied off its worst levels and is now down 9% at 19.9660 per dollar. The peso has repeatedly been under pressure on the prospect of a President Trump as he has promised to build a wall to crack down on immigration. Notably, the dollar is up 1% versus the Canadian dollar as Trump has repeatedly said he would renegotiate NAFTA. Gold is climbing. The precious metal hit an overnight high of $1,338 per ounce, but has halved its gains and currently sports a gain of 2.4% at $1306 per ounce. US economic data is light. Wholesale inventories will be released at 10 a.m. ET and the Department of Energy's oil inventories will cross the wires at 10:30 a.m. ET. Earnings reporting remains strong. Viacom, Tribune Media, and Wendy's are among the companies reporting ahead of the opening bell while Mylan and Shake Shack highlight the names releasing their quarterly results after markets close.

India's prime minister abolished 500 and 1,000 rupee notes to fight corruption.

Big oil looks past its profit crunch as cash flows recover.

Icahn doubles down on Hertz.

Paddy Power's $1 million gamble has backfired.

U.S. consumers need help amid 'frightening future,' according to Stephen Roach.

Ireland will take its Apple tax fight to EU court.

Earth just experienced the hottest five years on record.

There's not much to be said about the election result at this point that you won't have heard a million times already. There will be plenty of time for "takes" in the days ahead. But here's one minor thing that really stood out during the election results, and that was the totally simplistic manner of trading during the initial flurry of results. If you lined up a chart of the Mexican peso against the U.S. dollar in the hours between 6:00 a.m. and 9:00 p.m. ET, there were several wild swings, and basically every single one coincided with CNN's raw vote total out of Florida at that time, even though those raw vote totals didn't really tell you all that much at any given moment. You'd think that given how much was on the line in this vote, that traders would be a little more sophisticated about their approach to this, and yet it seemed shockingly simplistic. Clinton leading in the raw votes: risk on! Clinton losing in the raw votes: risk off! Anyway, it's all a minor consideration here, but still interesting. And given the fact that there are more political risks ahead, this is worth thinking about.