US futures point to more gains

US futures are pointing to yet further gains as we approach the open this afternoon, with financial stocks all looking to take their lead from a strong start in Europe. The Donald Trump affect still seems to be taking many by surprise, after initially being seen very much as the risky option for the markets. His acceptance speech yesterday seemed to be the calming influence for global markers and was the catalyst for strong gains across US markets helping the S&P, Dow and Nasdaq all close higher by over 1%.

The biggest fear for markets had been around the prospect for the Fed’s December rate hike that had almost been priced into the market. In the past the Fed have used uncertain markets and aggressive downside moves as reasons not to move the bench mark interest rate. However market probability, which was up at 85% prior to yesterday’s result, dropped only mildly to 75% during the election results. The prospect that rates will be higher and regulation lower in the financial sector under a Trump presidency has helped every European bank to open in the green so far this morning, something that the financial sector in the US will be looking to replicate.

With the prospect for the Fed rate hike still up above 80% this morning the markets will closely watch a speech from the Fed’s Bullard this afternoon. Although he won’t say anything that gives too much opinion on the new President, we will be looking for hints that the Fed remain on track to act before the end of the year.

The US dollar reacted in a very similar way to stocks yesterday and for very similar reasons yesterday, and traders have to be wary of both the US dollar and equity markets moving in line with each other for too long. The natural economic reaction to the prospect of a rate hike would be a stronger dollar and weaker equities, however the really we are seeing is going against the natural expectations, this is in relief more than anything. Investors must be careful and expect a correction in either stocks or the US dollar once we settle back into Fed Watch.