The risk-on rotation trade continues to have legs for the time being but we could see this suffer a bit of payback before long.

Yesterday it still very much the driving force as the Nasdaq 100 fell almost 2% and the Russell 2000 small cap index rallied over 1.7%.

That left the S&P 500 almost flat for the session, closing a shade lower at 3,545. US Treasury yields rose, with 10s approaching the psychologically important 1% barrier.

US bond markets are closed today for the Veterans Day holiday and there is an empty data roster ahead, though we will be watching Christine Lagarde’s speech later.

Donald Trump continues to refuse to concede the election and Republicans are closing ranks around the president as they eye two Senate runoff races in Georgia. They know they need the Trump appeal to get the vote. Have markets been too sanguine about an impending constitutional crisis?

European markets were firmer again in early trade on Wednesday, with the FTSE 100 clearing 6,300 to hit its highest since the middle of June and it now trades above its 200-day simple moving for the first time since late February. A close above the 6,340 brings 6,500 and the post-selloff peak into view.

However it’s a bit more complex today than being all about the reopening trade – this week’s big gainers like Rolls-Royce and Compass Group are down, whilst Ocado, Kingfisher and Just Eat have risen. Rotation is not going to be a straight line – this reopening move is taking a bit of a hit this morning.

After the initial kneejerk, investors will need to work out now which ‘value’ stocks remain value traps and which have some growth in them. Expect pullbacks along the way but the overall landscape remains much more positive than it was a week ago for these sectors worst affected by the pandemic.

FTSE breaking free, eyes post-trough highs:

Sterling is making solid gains as Brexit talks continue and head towards, we hope, some conclusion. GBPUSD trades with a bullish bias towards 1.33, its highest since September.

EURGBP broke below 0.89 and trades under its 200-day simple and exponential moving averages – a key area of support. Sterling is thought to be among the biggest beneficiaries of a vaccine since the UK economy seems to have been hit hardest by the lockdown among the G10.

What’s less clear is whether sterling bulls get caught offside by a breakdown in Brexit talks before ultimately a deal is sealed at the last minute. They might be right but their timing may be wrong.

EURGBP sows downside momentum after closing under 200-day EMA:

The Reserve Bank of New Zealand left rates on hold at 0.25% and signalled they would stay there until March 2021.

The central bank also met expectations for more stimulus by launching its Funding for Lending Programme, which will allow it to cut to negative should it require to – but a forecast upgrade for inflation to reach 0.9% in Dec 2021 vs the prior 0.3% expected signals the RBNZ is not about to go negative.

With broad USD weakness underpinning the risk-on crosses, the kiwi rallied as markets pared bets for negative rates. NZDUSD hit 0.69, nearing the March 2019 peaks around 0.6940.

Kiwi tests March 2019 highs:

Elsewhere, crude oil continues to make gains with WTI (Dec) breaking free of the $41.50 range to test the next big level at $42.50 with momentum going one way in the aftermath of the Nov 2nd outside day reversal. API data showed crude oil stocks fell by 5.1m barrels last week, much more than analysts had expected.

Whilst inventories are still muddied by the hurricane-affected shut-ins on the Gulf of Mexico, crude prices are riding the Pfizer-led risk rally.

Nevertheless, near term supply pressures and lockdowns ought to be weighing on demand in the next few months. Expect a significant amount of chatter around the OPEC+ deal ahead of the meeting starting Nov 30th.