Morning Brew November 8 2024

Good morning,

Traders and investeors are trying to understand the implications of a second Trump term and are looking for clues... 

Our Take: 

Potential Winners of Trump 2.0

• Energy: Deregulation and an emphasis on energy independence could favor traditional energy sectors, boosting oil and gas stocks. However, mixed performance is likely for oil prices which could dip lower amid increased US supply risks, but risks are counterbalanced by higher odds of stricter Iran sanctions and a slower Fed rate cutting cycle.
• Banks: Financials may benefit from rising yields and deregulation, with potential improvements in net interest margins and profitability. Reflation risks are also supportive of the banking sector.
• Defense: Higher defense spending could drive growth for defense contractors, as geopolitical tensions may intensify.
• Small Caps: Domestic-focused policies and tax cuts could support growth in U.S.-centric sectors, benefiting small-cap stocks.
• Gold: Gold may gain as a safe-haven asset and inflation hedge, especially amid potential trade frictions and stagflation risks. However, risks could be seen in case of excessive USD strength and if the FOMC slows its pace of rate cuts.

Potential Losers of Trump 2.0

• China and Hong Kong Stocks: Tariffs and increased geopolitical friction could put sustained pressure on these markets, likely diverting capital flows to regions like India and Japan.
• Consumer Discretionary: Tariffs raising import costs could impact consumer spending, weighing on consumer-focused sectors.
• Renewables and EVs: Policies that prioritize traditional energy could negatively impact renewables, electric vehicles, and battery production, which rely on government incentives.
• Europe: European markets may face headwinds due to trade tensions, with export-heavy economies like Germany particularly vulnerable.

After the Fed delivered pretty much what was expected – a 25 basis point cut and no big surprise in the press conference, Equities closed mainly higher, yields came lower and the USD Index gave up ground.

A further rate cut in December seems clear and is priced in at above 90% after Powell stated the Feds policy was still restrictive at the current level, from there on the path is less certain.

10 Year Yields came down to 4.36 and off the important technical level at 4.50, the USD Index fell to 104.48 and is this morning recovering a little. EURUSD rose to 1.08 yesterday and is not 1.0777, GBPUSD in now 1.2966 and USDJPY 152.80. The Bank of Japan has expressed unhappiness with the strong moves of the Yen but so far not taken any action Gold and Silver surged yesterday and are giving up some of the gains this morning, Gold is and 2690 and Silver 31.60.

The Dow  closed basically unchanged the S&P 500 rose 0.75%, the Nasdaq up 1.5% in again massive volumes that were more than 25% above the average at 16.7 billion shares,

Nvidia is at an all time high of 148 ahead of earnings next week, Meta rose more than 3% yesterday, Tesla 3%, financials gave up some of the previous strong gains. Banks are seen to be one of the profiteers of the Trump administration on less regulation and merger restrictions.

The Dax had a very good day yesterday as new elections are a question of when not if. From a low of 19020 after the US election, we gained 400 points. Rheinmetall rose app 10%.

Today’s Agenda is this the US election and the fallout will remain in focus and has the potential for sharp moves. It can either be a fairly quiet day of busy and choppy when or if traders read just positions and digest the massive moves.

The conclusion of the Chinese NPC and stimulus measures are expected. China will be massively affected by the Trump administration and any visible preparation will be interesting to see. European Leaders are meeting in Budapest.

Trade safely

Friday

- Data Canada Labor Data
- Earnings, Sony,