Colin Cieszynski
The Before the Bell report is compiled by editors of The Globe and Mail and is updated throughout the morning to reflect latest developments. Colin Cieszynski, Chartered Financial Analyst and Chartered Market Technician, is chief market strategist with CMC Markets.
I feel like we're in the middle of a magic trick where a bear is being rolled out on the stage while the audience is being distracted by something shiny.
Stock markets are in their post-election honeymoon and Thanksgiving break. U.S. index futures are up 0.2 per cent, building on a light and moderately positive day in Canada and overseas Thursday and flat markets in Europe this morning.
Copper is up another 1.5 per cent today while crude oil is down 1.2 per cent. Overall trading is expected to be quiet again today with the big players at home for Thanksgiving or out taking advantage of Black Friday sales.
We have had some incredible moves since Donald Trump's surprise election win. Trump trading has sent the U.S. dollar, U.S. stock markets and base metals led by copper soaring while defensive havens like bonds, gold and the yen have plunged along with non-U.S. currencies like the euro and Canadian dollar.
The big Trump-sparked moves have continued this week even though technical indicators have been flashing yellow — indicating moves that have gone too far, too quick are running the increasing risk of a big correction like the one that happened in copper two weeks ago. Fed Funds are pricing in a 100 per cent chance of a December rate hike by the U.S. Federal Reserve indicate complacency has really set in and it wouldn't take much to spark a significant course reversal.
I have been thinking that something has to give between stocks and the U.S. dollar and it appears that the potential spark for a correction could come today, although traders may not really notice it until next week.
Press reports indicate that U.S. Green Party Candidate Jill Stein has raised several million dollars this week to launch recount bids in key Midwest states that Donald Trump won by a close margin.
The excuse for the recounts is apparently related to questions over whether electronic voting machines in rural counties which voted for Trump had been hacked — although this wasn't brought up before the vote. The Democrats having made such a big fuss over the election being fair, and respecting the result, means they can't launch a challenge. So it looks like the Green Party is acting on their behalf.
The deadlines to demand recounts are coming up and Stein is expected for file in Wisconsin today (while markets are distracted with Thanksgiving and Black Friday), Pennsylvania on Monday and Michigan by Wednesday.
While it seems unlikely that the election result will be overturned, this could be enough to really upset the apple cart for markets that have become overextended and overcomplacent. The recount challenge launched by Al Gore and the Democrats after the 2000 election sent the Dow down over 5 per cent at the time.
Recounts could upset and slow the transition process, increase political risk in the U.S., cause the Fed to reconsider a December rate hike (even a shift from 100 per cent to 90 per cent could impact trading) and spark significant trading corrections.
Most importantly, regardless of what happens, it shows that even though the Republicans control the White House and Congress, the opposition isn't going to roll over and let the Republicans do whatever they want. They will use any means they can find to oppose initiatives, to slow down the process and to water down measures wherever possible. The markets have been acting like Trump is going to have his way on everything and the realization that isn't the case could also act as the spark for a correction.
So far, it doesn't look like markets have been taking this risk seriously so it may become a bigger story next week, but some cracks have already started to appear in the mighty U.S. dollar's armour. Gold, the euro, and yen have all started to rebound trading up from their overnight lows with the Canadian and Australian dollar posting smaller gains. Today could be the calm before the storm which savvy traders may want to spend battening down the hatches and boarding up the windows.
Now, here is a closer look at what's going on this morning and what is still to come.
MARKET DATA:
Futures (as of about 9:00 a.m. ET)
Dow +0.26 per cent; S&P 500 +0.20 per cent; Nasdaq: +0.14 per cent; TSX 60 -0.03 per cent
Equities
Japan's Nikkei +0.26 per cent
Shanghai composite index +0.61 per cent
Hong Kong's Hang Seng +0.51 per cent
Germany's DAX -0.10 per cent
London's FTSE +0.13 per cent
France's CAC 40 -0.11 per cent
Commodities
WTI crude oil (Nymex Jan.) -1.15 per cent at $47.41 (U.S.) a barrel
Gold (Comex Feb.) -0.07 per cent at $1,191.60 (U.S.) an ounce
Copper (Comex March) +1.53 per cent at $2.66 (U.S.) a pound
Currencies
Canadian dollar +0.08 at 74.15 cents (U.S.)
U.S. dollar index +0.0 at 101.70
Bonds
Canada 10-year bond yield -1.24 at 1.57 per cent
KEY ECONOMIC RELEASES
Japan consumer price index.
U.K. third-quarter real GDP.
(8:30 a.m. ET) U.S. international goods in trade for October. Consensus is for $58.9-billion.
(8:30 a.m. ET) U.S. wholesale inventories for October. Estimate for a 0.2 per cent increase.
(8:30 a.m. ET) U.S. retail inventories for October.
Also: Ottawa's budget balance for September.
KEY STOCKS TO WATCH
Also see: Friday's small-cap stocks to watch
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Online spending climbed to above $1-billion (U.S.) by Thanksgiving evening, surging almost 14 percent from a year ago, according to Adobe Digital Index.
Shares of Wal-Mart were up 1.14 percent at $71.64 in light premarket trading. Amazon.com inched up 0.32 percent.
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China's Ctrip.com jumped 9.5 percent to $44.90 after agreeing to buy U.K. travel search website Skyscanner in a deal valued at around $1.74-billion.
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Johnson & Johnson edged up 0.4 percent after Bloomberg reported on Thursday that the healthcare company had approached Swiss biotechnology firm Actelion about a potential takeover.
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Yum China, the newly spun off China unit of Yum Brands is in talks to purchase Daojia.com, a China-based food delivery company, for $200-million, according to Reuters.
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Alberta has struck a $1.36-billion deal with three major power producers to formally end coal-fired electricity in the province by 2030. Environment Minister Shannon Phillips announced Thursday that the province will pay three major power producers a total of $97-million a year over the next 14 years to compensate them for the shut down and to help them transition to cleaner forms of energy. The payments will be spread amongst TransAlta Corp., Capital Power Corp. and Atco Ltd. The money will come out of the carbon levy on heavy industrial emitters.
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Earnings include: (none of note)
With files from wire services