Risk Assets Go From Worst to First

Analisi Giornaliera - 10/11/2016

Trump Victory Sees Financial Market Go Higher After Earlier Losses


While the initial risk-off reaction in financial markets caused equities to trade limit down, the subsequent concession speech by Donald Trump caused a sharp reversal in risk assets, sending equities and the US dollar higher.  Alongside promises to work hard for all Americans, proposed stimulus measures and spending cuts helped bolster the US currency's appeal.

Trump Sends Dollar Climbing

While financial markets were initially shocked to awake to a victorious President-elect Donald Trump, the kneejerk selloff rapidly reversed, with risk assets completely rebounding and ending the session higher.  The dollar ended the session in positive territory, bolstered in large part by expectations that a December rate hike was still on the table.  Optimism was also stoked by the Republicans taking both the House of Representatives and the Senate, paving the way for immediate action after Trump is inaugurated.  Although some points of his plan for the first one-hundred days of office have been roundly dismissed by certain party members, Trump’s spending and taxation plans were well-received by financial markets.  After falling nearly 400 pips during the tallying of votes, USDJPY managed to erase all earlier losses before a surge back to the upside, ending the session 50 pips higher.


RBNZ Slashes Rates Again

In a widely expected outcome, the Reserve Bank of Australia dropped its benchmark interest rate by an additional 25 basis points overnight from 2.00% to 1.75%.  The move comes as renewed strength in the New Zealand dollar continues to hamper export competitiveness from the nation.  Nevertheless, there have been many positive tailwinds benefiting the economy over the last few months.  For one, unemployment is trending near an 8-year low and the rebound in the Global Dairy Trade index shows that prices for one of New Zealand’s key exports are gradually recovering.  Additionally, growth has notched its strongest performance since the fourth quarter of 2014 as supportive conditions spur upside in construction and manufacturing.  Nevertheless, one lingering problem remains, the threat of deflation, with consumer prices holding fast at 0.40%.  NZDUSD fell as much as 100 pips following the decision before a modest rebound.


US Crude Producers Open the Taps

Data released on Wednesday from the Energy Information Administration showed a larger than anticipated addition to onshore US crude oil stockpiles, with inventories rising by 2.432 million barrels last week.  Although upcoming figures may be somewhat skewed after an earthquake on Monday forced the Cushing storage operations to temporarily halt operations, data showed that the storage hub saw inflows of 28,000 barrels during the latest reading.  The biggest news was reports of gains in domestic US oil production, with daily output climbing by the most in 18-months.  In the biggest move since May of 2015, oil production rose by approximately 2.00% last week, climbing to 8.692 million barrels per day and marking the highest levels of production since May of this year.  Although prices were volatile after the move, NYMEX crude oil futures continued to rise from intraday lows after the announcement, closing modestly higher.


European Shares Reverse Sharply Higher After Trump Victory

Despite a ripple effect that spread across global equity products in the wake of Trump’s electoral triumph, European equity futures were quickly able to shake off losses at the open of trade.  Although foreign leaders extended courteous wishes to America’s new President-elect, there was a high degree of wariness, especially in Europe following the results of “Brexit” and more populist anger towards the EU ruling elite.  Moreover, it concerns the incumbent leadership that Trump’s success will be a sign of times to come, especially with far-right leader Marine Le Pen emboldened ahead of French elections being held in 2017.  While the immediate reaction to the election results was negative, with the French CAC 40 dropping nearly 180 points at the open of trade, the equity benchmark not only closed higher, but managed to record the single largest 1-day gain since the UK referendum.


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