World Stock Markets Insight After Donald Trump Victory

Trumpertantrum subsides for now as world markets digest US election upset but the stock market open could be volatile

Donald Trump’s big election win rocked world markets overnight surprising many traders, especially those who had been sucked in by Monday’s false relief rally. His victory speech took a much more Presidential tone and helped to calm the markets somewhat helping US indices to reverse about half their overnight losses. We’re still waiting to hear from Hillary Clinton.

Don’t be surprised to see a second wave of action in stocks this morning around 9:30 am EST when US exchanges reopen and the broader US investing public gets a chance to react to the big overnight developments.

Overnight market moves were as I expected would happen overnight in a Trump victory situation with US stock markets and the Mexican Peso plunging, ‎US dollar falling and defensive havens like gold and JPY soaring.

This morning finds US index futures ‎still lower with Dow futures down 2.2% S&P futures down 2.5% and NASDAQ futures down 2.9%. Overseas, the Nikkei fell 5.3%, the Dax fell 1.5% and the FTSE is down only 0.5%.

The Mexican Peso took the brunt of the currency action taking a double digit percentage plunge and is currently down about 10.0% with USDMXN trading above 20.00. CAD is also trading lower likely on concerns that Canada could get caught in the crossfire of a NAFTA renegotiation which could create economic uncertainty for America’s largest trading partner even though Trump’s sights ‎have mainly been on Mexico.

Other major currencies have been taking advantage of a weaker US Dollar particularly defensive havens like JPY which soared 3% at one point overnight and gold which is currently up 2.0%.  Speculation of a December interest rate hike has faded a bit but even with the future of Fed Chair Yellen in question and the influence of dovish Fed Governor Brainard cratering, a rate hike remains favoured by President-elect Trump. I still think we will see three rate hikes between now and December 2017 even if the first one is delayed until after the inauguration.

As I had suspected, Donald Trump was polling about 3-5% below his actual ‎support and the high level of anger at the establishment personified by the Clintons and Obama’s helped propel him to victory as I had forecast. I was also right about the markets being almost totally unprepared for his victory even with the Brexit experience still fresh in traders’ minds. A 5% decline in the stock market is not unusual as a new US President comes into office but I admit even I was surprised to see it all happen in 3-4 hours rather than 3-4 weeks.

I also had forecast a Trump win would be a Brexit level surprise, for some markets this has been even bigger than Brexit. The main difference has been that in the UK the currency GBP took the brunt of the reaction relative to stocks. In the US, stocks have taken the brunt of the reaction with the currency reaction taking place in MXN

It’s not unusual to see volatility in the markets when the party controlling the White House switches. With the Republicans also holding on to their majorities in both houses of Congress, the public has given Donald Trump and the Grand Old Party a clear mandate for change. Until we learn what forms that change could take we could see continued volatility in stock markets and higher interest in defensive havens.

Due to our proximity to the US and sensitivity to the US economy the changes likely to come may also impact trading in the Loonie and Canadian stocks.‎ The impact may differ between sectors, however. Gold producers could rally today along with the metal price and Energy stocks, particularly pipelines, could benefit from the Republicans friendlier energy and climate policies.

Chart Signals

Chart Signals: Trading levels for MXN, CAD, gold and indices following major overnight swings

The reaction to the Trump election victory was severe and swift with traders rushing to get back on side and unwinding Clinton victory speculation. Into the morning there has been a trading correction that has seen some markets complete round trips. The potential for volatility remains high through today and the coming days.

North American and European Indices

US 30 is bouncing around 18,000 trading between 17,915 and 18,165 after plunging as low as 17,475 overnight from 18,435. 200-day average support near 17,825.

US NDAQ 100 is retesting 4,740 as resistance once again having plunged from near 4,830 to a successful test of its 200-day average near 4,545.Initial support near 4,660 then 4,595.

US SPX 500 has regained 2,100 trading between 2,080 and 2,120 with more resistance at its 50-day average near 2,145. Overnight the index broke its 200-day average near 2,090 trading as low as 2,032 but holding well above 2,000.

UK 100 has made back most of its overnight losses trading back up into the 6,800 to 6,940 after a drop down toward 6,500. Initial resistance possible near 6,925 then 7,000 with initial support near 6,760.

Germany 30 has rebounded strongly from an overnight plunge briefly below 10,000 recently trading near 10,400 in a 10,300 to 10,500 emerging channel but it remains below its 50-day average and a lower high near 10,620.

Commodities

Gold is back under accumulation, trading above $1,300 and a Fibonacci level near $1,295 having exploded up from near $1,268 nearly up to $1.340 overnight. RSI bounce up off 50 confirms upward momentum increasing.

Crude Oil WTI held its 200-day average near $43.00 and has bounced back up toward $44.70 near the middle of its $40-$50 trading range with initial resistance possible near $45.45.

FX

US Dollar Index completed a round trip from 98.00 to 96.00 and back overnight with initial support near 97.60 then 97.25 and resistance falling toward 98.10 from 98.35. RSI near 50 suggests upward momentum downshifting to neutral.  

USDJPY has been all over the place overnight plunging from near 105.00 toward 102.00 then regaining 103.00 and the 50-day average in a bounce back toward 104.00.

EURUSD is back trading near $1.1000 having spiked up toward $1.1300 overnight and then slumping back down. Initial resistance near $1.1060 and next support near $1.0955

EURGBP is still sitting on 0.8900 holding below 0.9000 with next support possible near 0.8750.

GBPUSD remains under accumulation consolidating recent gains in the $1.2325 to $1.2560 range recently near $1.2380. Cable peeked up above $1.2500 overnight but failed to hold it again, indicating that more base building is likely needed. 

USDCAD continues to trend upward, briefly breaking out over $1.3500 overnight and trading up toward $1.3525 and then settling back toward the $1.3410 to $1.3450 area up from support near $1.3350. Next potential resistance near $1.3570 a Fibonacci level. 

CADUSD has resumed its downtrend after failing to hold above $0.7500 and diving from near $0.7540 toward $0.7400 before recovering into the $0.7430 to $0.7460 area.

USDMXN has exploded to the upside and is breaking out today. Driving up off 18.15, the pair has cleared its pre-debate high near the 20.00 round number trading near 20.20 having reached 20..75 overnight.

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