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Investors rushed back into shares, pushing the local market to its biggest jump in five years, and adding about $50 billion to the entire bourse's value as investors put a positive spin on Donald Trump's surprise victory in the US presidential election.
Mining stocks burst into life as markets translated a Trump win to mean an increase in US infrastructure spending, which ultimately flows through to commodity prices and those firms employed to build new projects.
"With the US potentially joining the fiscal stimulus underway in China and Japan, we flag Australian resources as a beneficiary of a stronger investment and growth outlook," said Chris Nicol, Australian strategist at Morgan Stanley.
The benchmark S&P/ASX200 Index climbed 3.3 per cent to 5328.8 points, the biggest one-day leap since October 2011.
Iron ore rocketed to its highest level since January last year, prompting BHP Billiton to soar 8.2 per cent, closely followed by Rio Tinto, up 8.2 per cent and Fortescue Metals, up 10.7 per cent.
While the Trump agenda lacks the amount of detail investors would prefer, his vows to reform taxes and limit business regulation, are expected to boost economic activity and provide a lift to inflation.
"Trump may implement just some fiscal policy in size," said Adam Donaldson, head of fixed income, rates and research at CBA. "But pro‑growth strategies, however implemented, are pro‑growth strategies. And we would expect to see a strong inflation response."
Should inflation pickup, the likelihood of the US Federal Reserve hiking interest rates also increases. As such, bond yields soared on Wednesday, leading to a selloff in the shares of bond proxies - companies that have profited from investors searching for yield. Sydney Airport closed down 1.8 per cent and Transurban Group also plummeted, closing down 3 per cent.
Here's more good news for the miners: iron ore futures in China surged by their 9-per cent limit to hit a 30-month peak, extending a recent rally backed by strong coking coal markets as well as steel prices.
Higher fees imposed by the Dalian Commodity Exchange on trading of coking coal and coke futures have diverted some funds into iron ore, traders and analysts said, helping iron ore outperform the rest of the ferrous market.
Spot iron ore topped $US70 a tonne on Wednesday night for the first time since January 2015, reflecting firm demand for high-grade cargoes as Chinese mills boost efficiency amid costlier coal, and could track further gains in futures.
The most-traded January iron ore on the Dalian exchange was up 5.9 per cent at 571.50 yuan ($US84) a tonne by midday. It hit its upside limit of 588 yuan earlier, its loftiest since April 2014.
While there is "no big rush" among Chinese steel mills to buy iron ore cargoes, "supply of high grade is limited, so it's natural to see prices rise", said an iron ore trader in Shanghai.
"Clients are now only looking for high grade and are showing no interest for low grade," he said.
There was renewed interest in iron ore futures after the Dalian exchange this week raised margins and fees for coking coal and coke following recent rapid gains.
"Recent curbs on coal futures trading were seen diverting funds back into (iron ore)", ANZ said in a note.
It's not only the local market rallying hard, bourses around the region are soaring as investors jump on the Trump bandwagon.
Japan's Nikkei us soaring 6.3 per cent, not least thanks to a retreat in the safe haven yen, the Hang Seng in Hong Kong has added 1.9 per cent, the Kospi in Korea is also up 1.9 per cent and the Shanghai Composite has added 1.1 per cent.
Risk asset markets have made sharp reversal after yesterday's slump as traders reassess the economic implications of a Trump presidency with many seeing it ushering in higher growth.
Moreover, Robert Di, founding partner of investment firm RPower Capital, said that many investors were better prepared this time around after the Brexit shock.
"Brexit has taught investors how to deal with black swans," Di said.
"What's more important, many investors think Trump's policy is actually good for the US economy in the long term. What's good for US stocks is good for Hong Kong stocks."
The gains are all the more remarkable considering Trump's threats to slap imports from China with a 45 per cent tariff.
But teven Sun, HSBC's head of China and HK equity strategy, played down Trump's anti-China rhetoric, saying higher tariffs "could be blocked or toned down by the US congress."
There's a bit of a focus on the big miners today, thanks to their spectacular rally on the back of hopes of an infrastructure boom by the incoming US administration.
Vanessa Desloires has asked fundies for tips on some big caps that could profit from Trump's policies. Here are five recommendations:
Whitehaven Coal
"Trump's election breathed fresh life into an industry struggling with debt and the worst price slump in decades," says Peak Asset Management executive director Niv Dagan, expecting Whitehaven to outperform beyond its stellar rally this year.
Woodside Petroleum
"Trump, who's bullish on fracking, has pledged to roll back regulations and open more federal land to extraction industries," says Dagan.
Oil and gas producers with US operations are therefore set to benefit.
CSL
A Trump presidency is positive for the likes of CSL, Citi analyst Victor Windeyer said.
"In the absence of detailed policy information our preliminary view would be that nominally a Trump presidency is positive for companies where prices were under threat of reform by a Clinton administration," he said.
However, he said CSL's share price underperformance of late was less driven by the threat of reform and more by its poor operating results, so any potential rally could be muted.
Transurban
The Australian toll roads operator is among those poised to benefit from Trump's plans to spend big on infrastructure.
"Trump is a strong advocate for infrastructure spending. Australian companies that have a global footprint... will be in strong positions to benefit," Dagan says.
Macquarie Bank
Trump's stimulatory policies including his tax cuts, will give US GDP a "big boost", Bell Potter's Richard Coppleson says, lifting US-exposed companies including Macquarie Bank which derives around 30 per cent of its operating income from the Americas.
Local banks should also benefit from Trump's vow to reduce financial regulation, Dagan said.
"The top and mid-tier banks should get a boost, as the wholesale cost of funding reduces."
BlueScope shares are soaring after the steel products maker said cost cuts and productivity improvements were bigger than previously flagged, while volumes grew during the first half.
BlueScope said it expects to achieve underlying earnings growth of around 50 per cent to $510 million in the first half of the financial year despite higher raw material costs.
"Nonetheless, the board is well aware that global steel remains in oversupply. We must continue our relentless focus on cost competitiveness in the face of this oversupply, input price pressures (especially coal prices) and market volatility" chairman John Bevan told BlueScope's AGM in Melbourne.
Shares are up 12.6 per cent at $8.33 amid a broader rally in resources-linked stocks.
America could be better off under incoming US president Donald Trump if he can repair the tax system and incentivise companies such as Apple to bring home billions of dollars sitting idle in offshore outposts.
Global investor Paul Moore, the founder of PM Capital, thinks that if Trump is serious about his promise to cut the company tax rate, the repatriation of profits could go some way to breaking the decades-long capital spending drought that record low interest rates have failed to revive.
"If you look at what the real agenda is with tax reform, it starts dealing with some of those blockages to getting the economy going," Moore said after Trump's upset win in the US election. The Republicans will control both houses of government and get to appoint the next Supreme Court justice.
Not a great deal is known about the details of Trump's tax reform policy, but he has proposed slashing the 35 per cent federal corporate income tax rate, which is even higher including state corporate income taxes, and floated a 15 per cent corporate income tax rate.
That would help US businesses be more competitive versus Ireland's 12.5 per cent, where many IT companies sit. Trump argues a lower business tax burden will stimulate investment, deter firms relocating offshore and create jobs. And on this, most people agree with him.
"The bureaucracy has always said 'we'll give them a fine', 'we'll say don't do this', but the corporates are too smart," Moore said. "You can't have everyone earning their profits in Ireland. The amount of money they have supposedly sitting [dormant] - it's phenomenal."
Shares in Treasury Wine Estates, which has a significant exposure to the US market, are more than 8 per cent higher after the company reiterated its forecasts for an improved financial performance.
Chief executive Michael Clarke told the company's annual general meeting in Adelaide that Treasury Wine would deliver better than expected savings by fiscal 2020, stronger cash benefits from its acquisition of Diageo Wine, and boost its earnings margin in the high teens by fiscal 2018.
Shares in the owner of the Penfolds, Lindeman's and Wolf Blass brands are up 8.1 per cent at $10.94.
Clarke also said its large US-based winery businesses making 40 per cent of its total profits mean it's the best positioned out of all the global wine players to thrive in Donald Trump's America.
The Reserve Bank of New Zealand says the US needs to think very seriously about its trade leadership in the Asia Pacific region.
RBNZ Governor Graeme Wheeler also told legislators that markets were analysing the impact on trade stemming from Donald Trump's stunning win in the US presidential elections.
The comments followed the central bank's widely expected decision to cut rates by 25 basis points to a record low of 1.75 per cent.
RBNZ's McDermott: Can cut rate more if needed, risks on rates still to the downside. NZD too high, looks at intervention at each meeting
— Livesquawk (@Livesquawk) November 10, 2016
In the statement accompanying the decision, the RBNZ hinted it was done with cutting rates for now but also noted that "numerous uncertainties remain, particularly in respect of the international outlook", which analysts interpreted as a veiled hint at possible disruptions stemming from a Trump administration.
Citi called the line a "Trump put", which allowed the central bank a return to a more dovish stance if some of his protectionist policies come to fruition in the future.
New investor loans rose to their highest level in more than a year in September even as owner occupiers took a step back.
Lending to investors rose 4.6 per cent from August to $12.4 billion, the largest monthly total since August last year, when the figure was $12.7 billion.
While the strong figure suggests investors appetite may have strengthened over the month, the monthly numbers are volatile and not definitive. Over the 12 months to September, investor lending commitments totalled $137.5 billion, a fall of 15 per cent on the level a year earlier. The rolling 12-monthly total has fallen for eight straight months.
Owner-occupier borrowing - excluding refinancing of existing mortgages - ticked slightly lower to $13 billion from $13.1 billion.
In contrast to investor loans, owner occupier borrowing has risen over the past 12 months. In the year to September it totalled $162.2 billion, a 7.5 per cent increase on the same period a year earlier.
While the housing finance figures were "firmer than expected", the headline number "appears to be inflated by refinancing activity, a common theme in the latter part of this cycle," JP Morgan economist Tom Kennedy said - see the chart below.
"Indeed, once refinancing activity is taken into account, genuine new loan growth slows to a less impressive +0.5 per cent m/m and more closely aligns with other activity data (such as building approvals and auction volumes) where turnover has dropped," he said.
Mr Kennedy also pointed to "some interesting developments" in the composition of loan growth, and in particular that "investors' share of new loan commitments now stands at 38 per cent, a high for 2016 and 3 percentage points above the average from 1Q16".
"While this share remains below the 2014 peaks (44 per cent), the spurt of investor activity in the past six months will certainly be on the RBA radar."
Deutsche Bank have re-jigged their forecasts for Seven West Media following Wednesday's annual general meeting - and it doesn't look good.
The DB analysts now expect full-year earnings for 2016-17 to fall 21 per cent year-on-year to $252 million, less than the company is forecasting. This expectation is based on estimates the television advertising market growth will shrink by 1 per cent and that the West Australian will see a 7.5 per cent decline in revenue.
Deutsche Bank media analyst Entcho Raykovski now has a 85¢ target price per share, down from 90¢. SWM shares are trading are up 0.4 per cent at 67¢.
All that said, DB retains its "hold" rating on the stock.
Donald Trump's successful insurgent bid for the White House promised to upend a global power structure that benefited large corporations. Now, several Wall Street financiers and other successful business leaders could be in line to run top posts in his presidential administration.
People close to Mr. Trump have said he is considering Steven Mnuchin, a former Goldman Sachs banker who became his national campaign finance chairman in May, as his pick for Treasury secretary. If tapped for the job, Mr. Mnuchin would become the third Goldman alumnus in the last 20 years to head the Treasury, following Robert Rubin and Hank Paulson, who both served as the bank's chief executive.
After a 17-year career at Goldman, where Mr. Mnuchin led the mortgage-trading department and was the bank's chief information officer, he turned to investing. He briefly worked for a hedge fund tied to George Soros, the big Democratic donor. In his closing campaign ad, Mr. Trump featured both Goldman and Mr Soros as "the establishment…who control the levers of power in Washington."
Advisers to Mr Trump have said promptly filling senior appointments would help calm jittery markets, which saw volatility soar after it became apparent that Mr Trump, a political outsider who broke with the political philosophy that has defined both parties, would win the election.
Westpac is jacking up interest rates for foreign loan customers, The AFR's Street Talk column has revealed.
The change, which comes into effect next month, will classify the loans under a "non-resident reference rate" category, leading to a 0.5 per cent higher standard variable rate. It will hit offshore-based customers not Australian residents or citizens.
Westpac's decision steps up an assault by all of the big banks on lending decisions based on a customer's offshore income.
In April, Brian Hartzer-led Westpac joined ANZ and CBA in a round of foreign lending tightening.
The reasons behind the clamp down included increased difficulty in securitising those loans particularly as banks looked to make the best use of deposit funding.
A Westpac spokesman confirmed the rate changes slated for December, adding they took into account the bank's "risk settings, the economic landscape, and expected changes in capital requirements for that segment of the mortgage market."
Lenders are quietly reviewing loan and other pricing levers as they prepare for the Basel Committee's next reforms, Basel IV, and navigate challenging credit growth and continued margin pressures. This was made clear during bank profit reporting season in the past two weeks.
In many cases the big banks have virtually closed the door on lending based purely on offshore income.
ANZ in March said it would no longer accept loan applications based solely on foreign income. For borrowers seeking loans based on more than 50 per cent of foreign income, there are limits on the size and source of funding.Other measures introduced included insisting on original copies of un-translated supporting documents required for a loan application and tightened passport scrutiny.
Westpac and others have also tinkered with loan-to-valuation ratios (LVR), which stipulate the proportion of the mortgage amount that is required as a deposit, for foreigners.
Local applications to Westpac that include foreign income will require a lower maximum LVR of 70 per cent, down from 80 per cent.
CBA, the biggest home lender, made changes including withdrawing loans to temporary Australian residents with foreign currency income.
The "reflationary rotation" out of bond proxies and into resources looks set to continue, Morgan Stanley analysts write.
"With the US potentially joining the fiscal stimulus underway in China and Japan, we flag Australian resources as a beneficiary of a stronger investment and growth outlook," they write. "Meanwhile, our team's outlook for steeper yield curves in this scenario would see further underperformance of bond proxies as markets pull back from what we believe is still a strong deflationary consensus amongst global and domestic investors."
The investment bank's currency strategy team see the US dollar as a "clear beneficiary" of what markets so far have judged to be a Trump agenda in which "infrastructure spending and (deficit-boosting) tax reform is prioritised".
They note that "tax reform may help repatriate the US$2.1trn of corporate cash held abroad, again reinforcing flows" into the greenback.
A stronger US dollar theme broadly would lead to a weaker Aussie dollar, particularly if there is further divergence between a tightening US Fed and an RBA that has thus far maintained an easing bias, however weak.
All of which is good for ASX-listed names earning in US dollars, such as James Hardie, Orora and Brambles, all of which are in Morgan Stanley's model portfolio.
In miners, also making it into the strategists portfolio is BHP, Rio, South32, Western Areas and Evolution Mining, while Oil Search and Woodside are the energy names.
There are risks in his hubris but Donald Trump is not irrational, a radical reformer, or a right-wing zealot and could be good for markets, says the AFR's Chris Joye:
For many, if not most, the financial market reaction to President-elect Trump's stunning victory would have been shocking. How on earth could US equities be up 1.1 per cent - an amazing 6 percentage points higher than the futures market lows immediately after the result when S&P500 futures smashed into their negative 5 per cent "circuit breaker" - and government bond yields be above their pre-election peaks after dropping like a stone?
The answer resides in expectations of President Trump contrasted against "stump Trump".
The initial investor reaction was to fixate on the latter, which was superseded by the former when Trump delivered a predictably rational and bi-partisan speech devoid of divisive rhetoric and stressing his desire to maximise economic growth.
Contrary to the caricature of a haphazard, crazy-man that pervades media trying to rationalise its inability to divine his success, Trump's campaign strategy was highly rational and designed to deliver the impossible. As a professional property developer and entrepreneur, Trump has repeatedly proven himself to be a master salesman, constructing whatever messages his audience required to buy the product he was purveying. In this case, it was a vision of himself, much as it has been with the Trump properties that sell the lifestyle he cultivates.
(In his speech) Trump placed his greatest emphasis on revitalising infrastructure spending, which markets have since latched on to. Yet it should be no surprise that a man who spent his entire professional career developing commercial and residential properties would make rebuilding America's transport infrastructure, hospitals, and schools a primary political goal.
The mercurial Trump nonetheless remains. There are absolutely risks that his self-confidence and hubris result in him regularly running off-reservation in public remarks that cause temporary mayhem in markets. But I am guessing that his actions will be collectively geared towards supporting business and growth and removing obstacles to both.
One consensus view in the hours after the election was that the Federal Reserve's December rate hike was dead. We countered that the Fed would still likely hike because markets would figure out that Trump is a friend, not foe, and could be quite inflationary.
One thing the Trump triumph is not making great again is the already flagging yield trade.
We've already mentioned that expectations of big tax cuts and a "yuge" lift in infrastructure spending has prompted the market to factor in higher inflation - accelerating a trend that has already sparked selling in bonds and taken the shine of bond proxies.
The local market is not immune to this trend. The 10-yr Aussie government bond yield has staged a big bounce to be close to 2.5 per cent -it's highest since May - after getting as low as 2.22 per cent yesterday.
And lo, the only sector other than gold miners getting hit today are yield stocks, as the chart below shows.
As Donald Trump celebrated his surprise election win over Hillary Clinton and equity futures swooned in response, billionaire investor and Trump supporter Carl Icahn headed home to start trading.
Icahn left President-elect Trump's victory party in the early hours of the morning to bet about $US1 billion on US equities, he told Bloomberg TV.
"I would have tried to put a lot more to work, but I couldn't put more than about $US1 billion to work, and then the market got away. But I'm still happy about it," Icahn said. "The S&P was so liquid - it was unbelievably liquid - the world was going nuts. Last night it was amazing, the world was going into a panic with no reason."
S&P 500 futures fell as much as 5 per cent overnight, triggering trading curbs that prevent further declines. The benchmark index rose as much as 1.4 per cent overnight and closed 1 per cent higher.
Icahn also said he'd taken off some hedging trades last night, after saying in August that he was more hedged than ever.
Icahn, who endorsed Trump for president in September 2015 and had been mentioned as a potential Treasury secretary, said the US economy isn't out of the woods yet. However Trump's election "is a positive for our economy, not a negative," Icahn said.
Speaking earlier in a phone interview on CNBC, Icahn reiterated that he has no interest in taking on the role of Treasury secretary in Trump's administration.
"I don't think I'd be the right guy to fit into Washington, you know, I'm not an establishment guy," Icahn said. "I never worked for anybody in my life."
Miners are off to a fulminant start on hopes a Donald Trump-led administration will fire up infrastructure spending in the US.
The ASX has soared 3 per cent to 5314 points in opening trade, adding more than $45 billion to the market's value and more than wiping out yesterday's losses.
But the real stunner is the massive spike in mining stocks: BHP is up an incredible 9.7 per cent, its biggest spike in ... a long time (we'll have to dig a bit deeper in the data to determine the exact date).
Rio has climbed 8.9 per cent and Fortescue is soaring 11.8 per cent, not least thanks to another rally in the iron ore price overnight to above $US70 a tonne.
The big banks are all pulling their weight in the recovery rally, jumping by more than 3 per cent.
Among the few losers are gold miners, led by Newcrest which is down 7 per cent after the precious metal's price reversed sharply overnight as markets started taking a more positive view of a Trump presidency.
"The stunning turn in sentiment suggests there is now a consensus building that much of the policy announced during the campaign was a sales pitch rather than a commitment to act," said CMC chief market strategist Michael McCarthy. "Investors ignored the potential for damage to international trade and growth prospects and focused on Republican control of both houses of Congress as well as the White House.
"This offers the prospect of reform that could stimulate the US economy. However, last night's action may be as good as it gets for markets for some time. Policy uncertainty and populist agendas rarely lead to sustainable economic growth."
As markets digest Donald Trump's victory, one prominent Wall Street prognosticator is keeping his year-end S&P 500 index target unchanged.
David Kostin, chief US equity strategist at Goldman Sachs, sees the benchmark gauge ending 2016 at 2100, about 3 per cent below the overnight close. His forecast envisions limited fallout from a Trump presidency and says stocks are likely to resume their ascent in coming years.
"We expect the equity market response to the election result will be limited," Kostin wrote in a client note. "The US economy has been expanding for seven years and continues to grow at a subdued pace. We expect the US stock market will climb slowly during the next few years in line with earnings growth."
Another strategist, Tom Lee of Fundstrat Global Advisors, predicted the S&P 500 will rally about 3 per cent through the end of the year. Lee cut his year-end forecast by 100 points to 2225 but said the Republican sweep of Congress and the executive branch should benefit economic growth and prevent the Federal Reserve from tightening.
"Unpopular presidents do not equate to bad economic and stock market outcomes," Lee said. "This is restoring some ballast to the political system. The Fed is likely on hold in December and USD weakening is easing financial conditions. Both should be perceived as short-term positives by investors."
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We have just witnessed one of the most incredible spectacles in financial markets you will ever see, writes IG strategist Chris Weston:
Very few had predicted a Republican clean sweep. One US investment bank had this outcome at a 6 per cent probability in their trading playbook around the event, and I certain admit I had succumbed to the various election probability models on offer from various pollsters and aligned my strategies around these.
Never again it seems, and the social change happening in the developed world is for all to see and one has to wonder about the French and German elections in 2017. One senses that a win for Marine Le Pen in France or the Afd party in Germany will not result in a one day sell-off, as it will radically increase the prospect of a break-up of the European Monetary Union. Anyhow a worry for another time.
The prospect of a Fed hike in December fell below 50 per cent in Asian trade yesterday, as traders saw the uncertainty of a Republican clean sweep as cause for concern. However, this probability now stands at 82 per cent, so with equities finding buyers the Fed have been given a green light to hike.
More importantly though the interest market has just got a little excited about the prospect of inflation (driven by fiscal stimulus) and is now pricing in not just one full rate hike in 2017, but also a 16 per cent chance of a second. We have seen three and a half quantitative easing (QE) programs from the Fed since 2009 and now "Trumpnomics" and fiscal stimulus is going to finally create growth…..let's see.
Given the monster sell-off we are likely to see in Australian fixed income I would expect sharp underperformance in any stocks that trade as a quasi-bond. Sectors like REITS, consumer staples and utilities may struggle today, but for the combination of huge gains in materials, fiscals and energy should push the ASX 200 3.4 per cent higher, which if it closes at that level would be the strongest gain since 6 October 2011.
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