In a quiet overnight session in which Japan was closed, European shares are mixed as financials and auto weigh, Asian stocks rise led by materials while S&P futures little changed against a backdrop of the continuing commodity rally with oil holding near $48 a barrel, up fractionally on the session.
European and Asian stocks rose after the early scare from the latest Fukushima quake dissipated, with the global risk on mood spurred by another jump in crude, which was up 1% in early trading, with the commodity complex now enjoying its biggest three-day rally since May, after Nigeria signaled optimism that OPEC will agree a supply-cut deal next week in Vienna. S&P futures are up 0.3%, with the cash index set to open at new record highs.
Global bond yields and the dollar both weakened after the Bank of Japan offered to buy an unlimited amount of debt at fixed yields, stabilizing the global bond rout, while investors awaited testimony from Fed Chair Janet Yellen that will help shape the outlook for interest rates ahead of a December rate hike that is now seen as near certain.
After taking a one day breather, the "Trumpflation Rally" returned with a vengeance as global government bonds tumbled and the dollar rose on renewed speculation the economic outlook is strong enough to allow the Federal Reserve to hike in December (odds are now 94%). Asian shares rose, industrial metals and crude oil fell, European shares and US equity futures were pressured.
It's ugly out there in Risk-Parity (RP) fund land as losses on bonds outweigh gains on stocks as correlations normalize (and volatility drops) echo the plunges experienced during 2013's Taper Tantrum. However, as RBC notes, adjustments to the leverage mechanism with RP strategies means, despite the carnage already, we may not have seen the cross-asset-class spillover yet.
Deutsche Bank has advised its sales and trading team to immediately report to their trading desks should Trump wins Pennsylvania and Michigan. So if Trump be is reported to be leading and/or winning the two key battleground states at 8pm, expect all volatility hell to break loose.
The US economy continues to show weakening conditions as new warning signs are flashing recession ahead. This is despite the best efforts of the FED and the US Government to assure the public that there are plenty of measures in place to continue to stimulate the economy.