The Overnight Report: Not Long Now

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By Chris Weston, Head of Research, Pepperstone

Good morning.

The focus firmly shifts to the US presidential debate, with Kamala Harris and Donald Trump slugging it out an hour into the ASX200 cash trade. Market participants will be watching closely, although, unless we see a dramatic slip-up, or a clearly dominant performance from a respective candidate, then it is somewhat unlikely the debate will prove to be a volatility event for markets, and we will likely wait to see how the relative performances impact the upcoming polls.

Presidential debates do have a history of moving polling by a couple of points and given a recent NY Times/Siena survey highlighted that 28% of respondents want to know more from Harris (9% for Trump), the debate feels like its Harris’s stage to show remaining undecided and lose swing voters that she has a has a strong plan to lead the US forward.

Looking at the history of polling, and while this time is different, in both 2016 and 2020 it was from exact this point into the election cycle that the DEMs made a charge and we saw both Clinton and Biden pull ahead markedly in the polls we’ll see if the debate can see this form guide repeat.

As it stands, Trump is modestly ahead in the prediction markets, while Harris is ahead in the average national polls. In the key battleground states, Harris has a small edge in Wisconsin, North Carolina, Michigan, and Nevada, with Trump edging it in Georgia, and Arizona. Pennsylvania, with its 19 electoral college seats, is tied and it’s this state that may make the ultimate difference to the electoral college outcome on the day.

Trump will likely steer the conversation as best he can towards the economy and immigration, and position Harris as dangerous and on the extreme left. Harris will look to position voter perception that she is a strong and considerate leader, with a focus on Trump’s temperament and character. For markets, while Trump’s trade policy is a potential landmine for risk, on-balance promises of deregulation, lower corporate tax policy and the potential for increased fiscal deficits edge Trump out as having the greater positive impact on markets however, the market price action and the collective weight of money will settle that.

Leading into the debate we see some lively moves across markets, although there were no signs that traders were pre-positioning and seeing risk around the debate. US Treasuries have seen notable buying flows, with the US 2-year -7bp to 3.59% – a new cycle low. With limited US data to drive on the session, the focus has been news on news that regulators are now proposing the big US banks increase capital by 9% to limit potential widening in the SOFR rates curve, although this is lower than the 19% that was originally put on the table. Adding to this, JPM President Daniel Pinto lowered expectations on net interest margins, which resulted in JPM shares closing -5.2% lower.

The moves in crude would have been a factor too, with Brent lower by -3.1%, and gasoline hitting a 4-year low. Crude has been well traded by clients, with a big technical breakdown playing out in both brent and WTI crude. Futures curves have flattened out, where we see front-month Brent futures US$0.37 from trading at a discount to the 2nd-month futures contract this is another bearish factor for crude, as it essentially means that traders will pay up carry when/if they choose to roll the futures contracts.

The buying in US Treasuries (lower yields) resulted in USDJPY trading from 143.70 to 142.20. The clear risk ahead is the US CPI report (22:30 AEST), where we see analysts forecasting headline CPI to fall to 2.5% (from 2.9%), while core CPI is expected to remain at 3.2%.

US equity markets hand over a positive lead, with the NAS100 +0.9% and SPX500 +0.5%. 52% of S&P500 companies closed higher on the day, led by REITs, consumer discretionary and tech. The S&P500 Energy and financial sectors closed lower. As we see in the intraday tape, the cash index traded into a low of 5441, before the buyers stepped in and dominated, with the index closing on its highs.

While there is clear buying pressure in the market, I still want to see a break of Friday’s high in the S&P500 futures of 5532 to compel to trade US equity from the long side, and that may play out in the session ahead.

Turning to Asia, our opening call suggests the ASX200 will open on a flat note, and one can imagine that between 11am and 12pm AEST very little activity will be seen with traders eyeing the debate.

On the calendar today:

-UK Jul trade balance

-US Aug CPI

-Adairs ((ADH)) ex-div 7c (100%)

-Accent Group ((AX1)) ex-div 4.5c (100%)

-Brambles ((BXB)) investor briefing and ex-div 28.90c (35%)

-EVT Ltd ((EVT)) ex-div 20c (100%)

-IDP Education ((IEL)) ex-div 9c (61%)

-IGO Ltd ((IGO)) ex-div 26c (100%)

-Kogan ((KGN)) ex-div 7.5c (100%)

-Mercury NZ ((MCY)) ex-div 12.74c

-Pepper Money ((PPM)) ex-div 5c (100%)

-Qualitas ((QAL)) ex-div 5.75c (100%)

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

Corporate news in Australia:

-REA Group ((REA)) reportedly in talks with its UK take-over target RightMove

-NextDC ((NXT)) is raising $750m to expand into Asia

-HMC Capital ((HMC)) is reportedly among leading contenders in the $400m iseek data center sale

-BGH Capital, Blackstone, KKR, Pacific Equity Partners, and EQT Holdings ((EQT)) are reportedly competing for Singapore Post’s $1bn Australian business, including Freight Management Holdings and CouriersPlease

The Australian share market over the past thirty days

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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