Trump & May combine to rattle markets

James Gerrish

Market Matters

ASX200 Weekly Chart

Donald Trump, who is not yet President, has now started speaking in earnest, often via Twitter! He has just criticized a Republican corporate tax plan and stated the $US was too strong, citing currency manipulation from China as the cause - the market swings around his mood changes have begun. These comments were enough to send the greenback lower with the currency making fresh lows for 2017, down 3.5% from its highs of the year - as we have said recently a crowded trade is a dangerous trade.

If Trump's comments can send the $US lower, it's not surprising that investors decided to lock in some profits in stocks after their enormous gains since his victory in November. The financials led the declines with the US KBW Bank Index falling ~3.5% at one stage - this may be good news for MM as we are looking to buy financials into weakness. Note we still like HGG and the strong reaction by the pound to Theresa May is a solid uplift to its earnings profile.

We are now mildly bearish the Dow short-term with a 19,200-target area.

US Dow Jones Daily Chart

When we look specifically at the US Banking sector another 4% downside would not surprise but we would regard this as a buying opportunity.

We remain buyers of the financial sector into weakness

US KBW Banking Index Weekly Chart

Both RIO and BHP satisfied our target for a break over 2016 highs yesterday enabling us to take profit on our RIO option trading position even though it failed to reach our $65 target (it traded to a high of $64.09) – another example of remaining open minded in this environment. We are now targeting a pullback to ~$59 (6%) in RIO where we will again consider a short-term / trading buy position.

RIO Tinto (RIO) Daily Chart

Summary

We feel a correction is unfolding in US equities that is likely to provide some solid opportunities in the domestic market - remember our theme for the start of the year, buy weakness and sell strength.

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James Gerrish
Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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