Morning Minutes 10/29/2018

Political Winds of Change Blow Through the Markets

October 29, 2018
9:00 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

One of the forces that has been rocking world markets this month has been political uncertainty. While the focus of investors in North America has been on the US midterm elections being held a week from today, big things have been happening overseas as well. Over the weekend, Brazil elected a new President, Jair Bolsonaro, in what has been seen as another step in the rightward/populist shift in voter sentiment around the world over the last few years (think Brexit and Trump).

Meanwhile in Germany, Angela Merkel announced that she will not run for re-election as her party’s chair when that term ends in December and that she will not run for re-election as German Chancellor in 2021. This news comes as her party was trounced in state elections for the second time this month; first Bavaria, now Hesse. German voters have been abandoning the two mainstream parties and embracing the Green party on the left and the Alternative for Germany party on the right. This news has the Euro on it’s heels, but has lit a fire under European stock markets where the Dax is up opver 200 points, or 1.8%, while the FTSE is up 1.9%, and Italy’s FTSEMIB is up 2.4%. It appears that the prospects of Merkel potentially becoming a lame duck leader and starting to lose her stranglehold on power in Germany and the EU has been greeted positively by investors.

US markets are also heading for a positive open today with Dow Futures up 160 points or 0.6% as they try to claw back from Friday’s 296-point decline. There are signs emerging that suggest the recent market correction may be close to running its course. In the wake of the soft inflation readings in last Friday’s US GDP report, treasury yields are starting to slide and the US Dollar is showing signs of topping, potentially removing two headwinds. The VIX remains elevated above 20 but peaked at a lower high last week. Also, with the exception of the retailers in a few weeks, this is the last big week for earnings results from the biggest market-moving US companies (Apple and Facebook in particular). The focus of earnings season now shifts to mid and small cap companies where the impact of news is more likely to be contained to each stock with less of an impact on the broad market except in aggregate.

 

SIA Wealth in the Media:

Colin Cieszynski was quoted on this week’s outlook for Gold by Kitco News:

Wall St., Main St. Look For Gold Upside To Continue

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