- The major theme last week was a follow through of “Trump trades”, which entailed a further surge in bond yields, a stronger $US, and equity rotation toward sectors likely to benefit from Trump’s policies, such as health care, financials, defence industries and infrastructure-related construction companies – and out “defensive yield” sectors that will be hurt from rising bond yields.
- In other news, US Fed chair Janet Yellen confirmed that a rate rise next month was still on track, which added to the upward pressure on bond yields. Opec also continued to murmur about agreeing to production limits, which saw oil prices lift. Gold is being hurt by $US strength.
- There is little new data globally this week, with a focus likely to be on what Trump says and who he appoints. Accordingly it may be a week of consolidation/profit taking on the “Trump trades”. There may also start to be a more sober analysis emerge on what Trump could actually get through the Congress, with a senior Democrat on the week-end, for example, suggesting Trump could struggle to get agreement on repeal of the Dodd-Frank restrictions on investment banks.
- In Australia, the main market move last week was $A weakness. There was also some value picking in “defensive yield” sectors, with listed property gaining despite a further rise in bond yields. Last week’s labour market report was soft, with employment rising a less than expected 9,800 in October, and the unemployment rate holding steady at 5.6% thanks to weak labour force participation. Last, iron ore prices pulled back after the previous week’s surge, not helped by reports of a softening in Chinese house prices (after some local-government policy tightening).
- Q3 construction spending is the only local data of note this week, which should be soft overall, reflecting the ongoing drag from mining investment partly offset by strength in home building.
- It is likely to be a week of consolidation as the “Trump trade” excitement dies down somewhat. It’s noteworthy that despite post-Trump investor optimism, the US S&P 500 has not (as yet) followed the Dow to make a new record high. Instead, the market has merely unwound the losses in the week’s leading up to the US election. That said, the S&P 500 is only 0.5% away from its record closing high of 2,193 set in mid-August, and a new record could be set sometime this week.
Have a great week!