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Market outlook: Trump presidency, inflation expectations rising

Markets covered: Rice, Cotton, Soybeans, Corn, and Wheat; Select Global Currencies; Oil; Select Equities; Copper; and 10-year Treasury Yield

U.S. Recessionary Forces Gathering Strength – Mandates Throttling Up U.S. Fiscal and Monetary Intervention to Avoid a Significant U.S. and Global Downturn

Post Tuesday’s November 8, 2016 U.S. Presidential and Congressional elections market participants are now anticipating inflationary forces will build with each passing month as U.S. and global governments and monetary officials become highly proactive in limiting global recessionary forces impact by growing global growth.

Rebalancing portfolios underway

Post-election market participants are biased toward investments that will benefit from:

  • An assumed smaller government;
  • A more accommodative business environment with a friendlier U.S. tax structure and regulatory environment;
  • Investing in infrastructure;
  • Investing in future technology;
  • Military preparedness; etc.

Significant money appears to be moving away from safe-haven investments like Treasuries and Utilities to riskier investments.

  • Market participants are rebalancing their portfolios by reducing their safe-haven investments like Treasury Notes which were around a yield of 1.34 after BREXIT and ended U.S. Election Week at 2.15.
  • For example, election week saw the strongest sector performance from financials, industrials, and materials as investors looked for opportunity in sectors that are expected to benefit from a Trump Presidency.   

Central Banks Trapped

Central Banks are trapped by the math.

  • If they raise the rates the Central Banks destroy debtors and asset markets.
  • If they keep rates at zero the Central Banks destroy pension funds, banks and insurers.
    • Simon Mikhailovich @S_Mikhailovich
  • Central Banks globally need their governments to inject sufficient levels of stimulus to provide inflationary lift. This would then allow the U.S. Central Banks and others the opportunity to raise their rates.

Governments Trapped

Governments are also trapped:

  • By a constituency addicted to irrational entitlement expectations and accompanying unsustainable levels of debt.
  • By a chronic slow growth domestic and global economy
  • By historic low and even negative interest rates
  • By populism vs globalization
  • By building economic, food, energy, and homeland security concerns.

U.S. Central Bank Rate Hike

  • Given today’s unfolding market expectations market participants increasingly expect a rate hike in December and likely several rate hikes next year.

Charts 1 - 3. $UST10Y - 10-Year US Treasury Yield

Primary Consideration:

  • Anticipated building government and monetary policy intervention expected to be friendly to business and favor investing in equities and commodities over bonds.
  • The 10-Year Treasury likely consolidates, but will be in search of a higher yield.

Charts 4 - 6. Soybeans

Primary Consideration:

  • I remain more concerned about additional price weakness and the culmination of a bottoming process near term. Bottom Weekly Bollinger Band presently at $8.95. 

Alternative Consideration:

  • Considering global risks and uncertainties and required intervention activities argue a price bottom is in place or near.

Additional Thought:

  • Market participants appear to be building a risk appetite. Being short means at least having close mental stops. 

Charts 7 – 8. Corn

Primary consideration:

  • Near term bottoming process underway, likely a retest of the previous low at $3.15 per bushel

Alternative consideration:

  • Bottom in place and upside consideration to $4.15 per bushel

Charts 9 - 10. Rice

Primary consideration:

  • A bottoming process is underway

Charts 11 -12. Cotton

Primary Consideration:

  • Corrective price action underway with possible price weakness to the bottom of the Weekly Bollinger Bands on the weekly chart
  • Bullish prices likely beyond this corrective price activity 

Charts 13 - 14. Wheat

Primary Consideration:

  • Forming a price bottom
  • Price weakness into the $3.80 area a possibility

Charts 13 - 14. Copper

Primary Consideration:

  • Copper price action the last 2 weeks was encouraging, but  prices likely need to make a final low before turning bullish

Charts 17 - 18. $WTIC

Primary Consideration:

  • A challenging market for a number of economic and geopolitical reasons
  • OPEC guidance likely defines price low
  • Global uncertainties supportive of prices
  • Range bound market 

Charts 19 - 21. CRB Index

Primary consideration:

  • Near term corrective action lower likely remains underway before moving higher. In the equity markets the financial, industrial, and materials sectors are likely beneficiaries of anticipated inflation.  

Charts 22 - 23. Power Shares US Dollar Index

Primary Considerations:

  • Dollar running into fairly strong resistance, consolidation likely, but expect more dollar strength than weakness 
  • Global interventionist government and Central Bank activities will define dollar strength or weakness over the next 3 to 12 months

Charts 24 – 25. SPDR S&P 500 ETF

Primary Consideration:

  • Acting bullish

Charts 26 - 27. QQQ NASDAQ Power Shares

Primary Consideration:

  • Consolidating
  • Price uncertainty near term, so be respectful until price  direction is further defined

 

Bond Rout Deepens as Trump Bets Buoy Dollar; Japan Shares Climb

By James Regan and Wes Goodman, Bloomberg Markets, November 13, 2016

“The global bond rout intensified, the dollar strengthened and futures indicated U.S. equities will build on their biggest weekly jump in two years as investors further assess the implications of Donald Trump’s election to the American presidency. Japanese shares rallied after GDP data.

Sovereign bonds in Asia slid with U.S. Treasuries, extending a record debt selloff, amid speculation Trump’s plans to boost infrastructure spending will spur U.S. interest-rate hikes as economic growth and inflation pick up. Bloomberg’s dollar index climbed to a nine-month high as an earthquake weighed on New Zealand’s dollar and gold sank to a five-month low. The Topix index rose to its highest since April after Japan’s gross domestic product grew by more than economists forecast, while emerging-market assets slumped.”

Continue reading at the following link: http://www.bloomberg.com/news/articles/2016-11-13/asian-futures-outside-japan-tip-stock-losses-as-quake-hits-kiwi

Bloomberg:

Charts Book Index – Link

Weekly Charts and Accompanying Daily Charts

Chart 1. $UST10Y - 10-Year US Treasury Yield, Weekly Chart, September 2013 – Nov. 11, 2016

Chart 2. $UST10Y - 10-Year US Treasury Yield, Daily Chart, November 2014 – Nov. 11, 2016

Chart 3. $UST10Y - 10-Year US Treasury Yield, Monthly Chart, November 2014 – Nov. 11, 2016

Chart 4. Soybeans, Weekly Chart, September 2013 – Nov. 11, 2016

Chart 5. Soybeans, Daily Chart, May 2016 – Nov. 11, 2016

Chart 6. Soybeans, Monthly Chart, May 2016 – Nov. 11, 2016

Chart 7. Corn, Weekly Chart, September 2013 – Nov. 11, 2016

Chart 8. Corn, Daily Chart, May 2016 – Nov. 11, 2016

Chart 9. Rice, Weekly Chart, October 2013 – Nov. 11, 2016

Chart 10. Rice, Daily Chart, February 2016 – Nov. 11, 2016

Chart 11. Cotton, Weekly Chart, September 2013 – Nov. 11, 2016

Chart 12. Cotton, Daily Chart, May 2016 – Nov. 11, 2016

Chart 13. Wheat, Weekly Chart, September 2013 – Nov. 11, 2016

Chart 14. Wheat, Daily Chart, May 2016 – Nov. 11, 2016

Chart 15. Copper, Weekly Chart, September 2013 – Nov. 11, 2016

Chart 16. Copper, Daily Chart, May 2016 – Nov. 11, 2016

Chart 17. $WTIC, Weekly Chart, September 2013 – Nov. 11, 2016

Chart 18. $WTIC, Daily Chart, May 2016 – Nov. 11, 2016

Chart 19. $CRB Reuters/Jefferies CRB Index, Weekly Chart, September 2013 – Nov. 11, 2016

Chart 20. $CRB Reuters/Jefferies CRB Index, Daily Chart, September 2013 – Nov. 11, 2016

Chart 21. $CRB Reuters/Jefferies CRB Index, Monthly Chart, September 2013 – Nov. 11, 2016

Chart 22. Power Shares US Dollar Index, Weekly Chart, September 2013 – Nov. 11, 2016

Chart 23. Power Shares US Dollar Index, Daily Chart, November 2014 – Nov. 11, 2016

Chart 24. SPDR S&P 500 ETF, Weekly Chart, September 2013 – Nov. 11, 2016

Chart 25. SPDR S&P 500 ETF, Daily Chart, November 2014 – Nov. 11, 2016

Chart 26. QQQ NASDAQ Power Shares, Weekly Chart, September 2013 – Nov. 11, 2016

Chart 27. QQQ NASDAQ Power Shares, Daily Chart, May 2016 – Nov. 11, 2016

Bobby Coats is a professor in the Department of Agricultural Economics and Agribusiness, Division of Agriculture, University of Arkansas System. E-mail: [email protected]

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