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Happy Thanksgiving eve. This is the day of the rope for Dollar bears, as demand for the greenback soars to new highs — sending shockwaves throughout credit markets. The euro is trading with a 105 handle against the dollar, off by 0.7%.

German bund yields are rising again, in addition to the rest of Europe.

U.S. 10yr is officially in blowout territory, rising from 1.75% to almost 2.40% since election night. Somehow investors have ignored the deleterious affects this rise in borrowing costs will have on the economy. Instead, the financial media has been fixated on an alleged inflation that is going to rip through the economy, like a miracle, thanks to Trump’s fiscal plans. The only problem with that train of thought is said plans will be wholly dependent on cheap credit, which is getting more expensive with every passing day.

Gold is down more than 2% — absolutely brutalized thanks to dollar strength.

Subsequently, gold stocks are off by more than 5%. It’s truly the day of the rope for them.

Tech stocks are resuming their post Trump win weakness.

Markets are somewhat benign to this whirlwind in the credit markets, led by the dollar. Eventually, this will mean something — especially when the Trump administration attempts to borrow a trillion dollars for new roads and tunnels.

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Inflation expectations (short- and long-term) have risen notably in the latest Uiniversity of Michigan survey data but it is “hope” that has soared. Consumer Expectations spiked most in over 3 years to 85.2 in November to 18 month highs following the election of Donald Trump as US president.

While current conditions remain well off the summer highs (107.3 vserus 110.8 in June), it is the surge in “hope” that is most notable.

Furthermore Business Expectations soared from 80 to 92 post-election.

So why the surge in optimism? One word: Trump.

According to the report, the initial reaction of consumers to Trump’s victory was to express greater optimism about their personal finances as well as improved prospects for the national economy. The post-election gain in the Sentiment Index was +8.2 points above the November pre-election reading, pushing the Index +6.6 points higher for the entire month above the October reading.

The post-election boost in optimism was widespread, with gains recorded among all income and age subgroups and across all regions of the country. The upsurge in favorable economic prospects is not surprising given Trump’s populist policy views, and it was perhaps exaggerated by what most considered a surprising victory as well as by a widespread sense of relief that the election had finally ended. To be sure, no surge in economic expectations can long be sustained without actual improvements in economic conditions. Presidential honeymoons represent a period in which the promise of gains holds sway over actual economic conditions.

UMich however warns that “Presidential honeymoons can quickly end if they are unaccompanied by prospects that economic conditions will actually improve in the future.”

As UMich concludes, “President-elect Trump appears to appreciate the importance of his first hundred days; the key issue is whether his economic policies will resonate with the nation’s consumers. The data indicate that consumer spending will advance by 2.5% in 2017.“

For now, however, all is well: after all Obama has 2 more months left under his tenure. After that all bets are off.

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With mortgage rates soaring, it is only a matter of time before US housing is adversely impacted. And while the just released October new home sales data focused on sales of houses based on contracts signed in the month before the election, some concerns were already evident, when the number of new homes sold tumbled to 563K from a pre-revised 593K, badly missing expectations of a 593K print.

This was the weakest new home sales print going back to the 558K new homes sold in the month of June.

Furthermore, and as has traditionally happened with this volatile series, the the previous 3 months of data were all revised uniformly lower, with the September surge to 593K, now reduced to a more modest 574K.

The silver lining is that the drop in sales lifted the supply of homes available for sale to 5.2 months at the current selling rate, matching the highest since March.

An interesting observation in the latest data is that despite the recent increase (and surge, most recently) in mortgage rates, the median sales price was mostly unchanged, declining from $314K to $305K, the second highest since the summer and suggesting that future homes prices are set to drop, in a move inversely proportional to the recent surge in mortgage rates.

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The Dollar Index has surged almost 7% in the last two months – one of the fastest spikes in 8 years – with the post-Trump spike the most significant. Today's buying panic has sent the Dollar Index to a crucial resistance level at around 101.80 (the 61.8% retracement of the 2001-2008 collapse).

101.80 is a line in the sand…

And that is where USD Index stopped today..

Yen is the biggest loser on the day against the greenback but all the majors (and Yuan) are tumbling….

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Well that’s unexpected…

Bloomberg’s consumer comfort survey shows Black Americans are at their most confident since Jan 2015 followingthe Trump election win, now more confident than white Americans.

We also note that Hispanic Americans are more confident now than before the election also. So it makes us wonder just who all these snowflake protesters are?

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Following the bump in Eurozone PMIs this morning, Markit reports November US manufacturing at 53.9 (better than 53.5 expected) and its highest since Oct 2015, showing "further signs of factories and their customers moving away from destocking to inventory-building amid a more optimistic outlook."

However, hope in the PMI survey seems to be decoupling from reality in actual production.

Under the covers, everything looks awesome with new orders rising (highest since Oct 2015), employment spiked to one of the largest of the year, and output jumped to its highest since March 2015.

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“US manufacturers enjoyed a strong post-election bounce in November, further tilting the scales toward the Fed hiking rates in December. Many factories reported that demand from customers had picked up as uncertainty about the election result cleared. Domestic demand rose especially sharply, helping to make up for subdued export growth, linked in turn to the strong dollar.

 

“The survey also found further signs of factories and their customers moving away from destocking to inventory-building amid a more optimistic outlook, accompanied by an upturn in hiring. The increase in employment was one of the largest seen so far this year.

 

“Inflationary pressures remained muted, with average prices charged barely rising, despite some further upward movement in many commodity prices.

 

“The buoyant post-election picture of the manufacturing economy and signs of increased optimism about the future will further fuel the conviction that the Fed will raise interest rates at its December 14th meeting, and may also raise the possibility that policymakers might be inclined to tighten somewhat more aggressively in 2017 than previously thought, although much of course also depends on the new government’s policy framework.”

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Submitted by Nick Cunningham via OilPrice.com,

Oil prices moved back up closer to $50 per barrel on the sudden surge in optimism surrounding an OPEC deal. With the meeting just days away, everybody is playing ball and sticking to the script, and the odds of an agreement have improved markedly compared to a few weeks ago.

Iraq offered three proposals to OPEC members, showing a renewed willingness to negotiate after weeks of disputing production data and demanding an exemption from the proposed cuts. Details of the proposal were kept quiet, but Iraqi officials sounded cooperative in an emailed statement. “Iraq’s legitimate demands should not be perceived as an obstacle to reaching a new agreement to freeze production,” Iraqi oil minister Jabbar al-Luaibi said, according to Bloomberg. Iraq is optimistic about “reaching a fair agreement that would take into consideration everyone’s interests and that puts an end to the glut.” Officials from Iran, Nigeria and even Russia also offered positive words about the prospects of an accord.

Oil prices shot up by more than 4 percent on Monday on the news. Oil has rallied once again in recent days after dropping into the low-$40s per barrel. Now back up close to the $50 per barrel threshold, OPEC has once again succeeded in jaw-boning the oil market.

Goldman Sachs hiked its oil price forecast this week by a substantial amount. The investment bank expects oil prices to average $55 per barrel in the first half of 2017, up sharply from the previous estimate of $45 to $50. The bank is now “tactically bullish” on oil. “With greater confidence that the global oil market can finally shift into deficit later next year, we now believe that there is a strong rationale for low-cost producers to deliver a swift production cut to normalize inventories,” Goldman analysts wrote in a research note this week. In fact, Goldman Sachs sees prices rising across a range of commodities next year.

The optimism has not trickled over into the oil futures market, at least not yet. Hedge funds and other money managers have stepped up their short bets on crude oil ahead of the OPEC meeting, covering against a steep downfall in prices should OPEC fail to come to terms. While the short positions on oil were notable, trading volume in general is way up. Bloomberg notes that as of mid-November, oil price volatility was at a seven month high. Bets on oil futures reached 1.47 million contracts for the week ending on November 15, the largest trading volume in nearly a decade.

But since mid-November, oil prices have increased, suggesting that some oil traders are closing out short positions, which could be because sentiment around the chances of an OPEC deal have improved. Further gains are possible as shorts are closed out.

At the same time, John Kemp of Reuters notes that the oil futures curve still does not look very good. The market is still in a state of contango, in which front month contracts are cheaper than oil futures further out. That is a sign that the markets still expect the glut of supply to continue. In fact, the difference between front month oil contracts and delivery six month out are actually wider than they were back in September when OPEC reached the Algiers agreement, which suggests an even gloomier outlook than two months ago.

In short, an OPEC agreement might spark a short-term rally, but unless they agree to real and sustained cuts, the poor fundamentals could ensure the price increases are temporary.

That last point is also key. OPEC may agree to something, but the details matter. OPEC is now producing at least 236,000 barrels per day (as of October) more than they were in September. That means that instead of needing to cut between 200,000 and 700,000 barrels per day in order to reach the stated goal of bringing output down into the range of 32.5-33.0 mb/d, OPEC will now need to make even sharper cuts – somewhere on the order of 600,000 to 1.1 mb/d. On top of that, the latest reports suggest that OPEC is discussing a six month agreement rather than one that would last a year. The idea is that it would require less of a sacrifice for OPEC members, particularly for Iraq and Iran who are still holding out. Of course, if OPEC cuts for six months and then the agreement expires, the effort will produce very little in the way of balancing the market.

Finally, assuming OPEC does the unthinkable and actually agrees to substantive and sustained cuts in output, they will likely succeed in pushing up oil prices. But that then merely throws a lifeline to U.S. shale, which could come back to life if oil prices move closer to, say, $60 per barrel. Even today, with prices below $50 per barrel, the rig count has been climbing for half a year, and now stands at 588 rigs as of last week, up almost 200 rigs from May. Gains in the rig count will only pick up pace of OPEC agrees to cut its output.

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