The Overnight Report: Trump, Bonds & Value

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By Chris Weston, Head of Research, Pepperstone

Good morning.

As we prepare to take on the deluge of major event risk over the next two weeks, the general feeling on the floors today is positive and there is little sign of worry or derisking.

US equity has closed broadly higher (the S&P500 closed +0.3%), with small caps leading the charge (the Russell 2k closed +1.6%), and while we’ve seen a bit of a chop fest in the intraday S&P500 tape, financials have found the love and led the way.

Gains were broad-based though, with 70% of S&P500 companies closing in the green, with energy unsurprisingly the underperformer. 

Tech and growth equities have taken a backseat, with value and high dividend plays as the factors that have attracted investor and trader flows on the day.

That may change with AMD due to report tomorrow, potentially offering further insights to solidify earnings expectations for other semi-plays due to report in the period ahead.

However, the trade that seems to be getting attention is to be long financials including smaller and regional US banks (KRE ETF +3%) and to marry that against long tech exposures a barbell’ strategy, which works when financials get the love, and when traders switch into tech/semi/AI.

Value outperforms with US election hedging also in play

 Value as a factor- typically outperforms by some measure around US election periods, so it’s no surprise to see this factor working well on the day.

An ever-increasing focus on long-end bond yields

The world clearly is paying ever-greater attention to the US and other DM bond markets, and notably the longer-dated maturities.

In a world of ballooning fiscal deficits, while the UK and France may be trying to address their fiscal issues at the expense of growth, we look notably towards Japan and the US, where further fiscal stimulus may result in the bond market taking them to task.

Obviously, in the case of the US, a further blow out in the fiscal balance would hinge on a red wave’ scenario playing out, and Trump playing the fiscal rollout poorly.

But with the Fed still undertaking QT, moves from here, and certainly post the US election, in the 10-year and 30-year US Treasury, will get increased attention.

Brent settled -6% lower, with the bulk of the selling playing out through Asia and early European trade, with price hitting a low of US$71.18 before trading a range into the US close.

While traders have gone someway to removing remaining geopolitical risk premium, crude also has to be on the radar in the event of a red sweep’ election outcome It seems a tall order to think the US can ramp up production by a further 3 mbpd when they already produce 13.5 mbpd, but if Trump holds true to his word, then it would make for a very interesting dynamic among the major crude producing nations and almost certainly result in US$60/bbl crude.

Nat Gas closed -10.9%, again cementing its place as the market for the bravest of souls, or at least for those with a high-risk tolerance.

Our call highlights the ASX200 to open 0.6% higher.

Certainly, if value was the play in the US, then the read-through for the ASX200 is a positive one given its status as the value and income equity index of choice for many international managers.

By way of event risk, the calendar remains on the light side in the session ahead, although US job openings (JOLTS) and US consumer confidence have the potential to impact. 

On the calendar today:

-Japan Sept Unemployment rate

-US Sept Jolts

-Ansell ((ANN)) AGM

-Credit Corp ((CCP)) AGM

-Coronado Global Resources ((CRN)) Qtrly Update

-CSL ((CSL)) AGM

-Karoon Energy ((KAR)) investor briefing

-Kelsian Group ((KLS)) AGM

-Sandfire Resources ((SFR)) Qtrly Update

-Vicinity Centres ((VCX)) AGM

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

Corporate news in Australia:

-Myer’s ((MYR)) acquisition of a portfolio of brands owned by retail billionaire Solomon Lew’s Premier Investments ((PMV)) is expected to be finalised this week

-Paladin Energy’s ((PDN)) acquisition of Fission Uranium faces approval uncertainty, while operational issues at Langer Heinrich Mine impacted production

-Metcash ((MTS)) extends Drakes supply deal but faces lower profits due to soft sales and margin pressures in hardware

-Raiz Invest ((RZI)) has exceeded $1.5bn in funds under management, achieving nearly 32% annual growth, boosted by stock market performance and AI-driven marketing

-Mosaic Brands ((MOZ)) enters administration with FTI Consulting after restructuring talks failed

By Nigel Green, CEO of deVere Group

As Donald Trump’s odds of winning the White House seemingly improve, investors are being warned that a swift retaliation from Europe would likely deliver a hammer blow to US stocks.

While market analysts are closely tracking the slide in European stocks impacted by the prospect of new US tariffs should Trump win the presidency, we’re issuing a crucial warning that’s been largely overlooked: American companies with substantial European sales may be next in line for a hit. 

As Donald Trump’s odds of winning the US presidential election improve, we believe the market is underestimating the risk of swift European retaliation and the pressure this could place on key American stocks.

If Trump returns to the White House and reinitiates his hardline trade policies, Europe is likely to respond in kind, creating a significant downside risk for US companies with exposure to European markets. 

This includes leading firms across sectors from tech and consumer goods to luxury and automotive, which could see profits squeezed by tariffs and changing market dynamics. 

Many of these companies, which rely heavily on revenue from Europe, are still trading at robust valuationsa vulnerability that may soon be exposed.

Investors need to consider the very real possibility of a new trade conflict between the US and Europe.

While much of the focus has been on European stocks with exposure to US markets, the impact on American companies with significant European sales has largely been ignored. This is a clear blind spot that we’re urging investors to take seriously.

A proactive approach now could make all the difference. For investors looking to stay ahead of the curve, assessing portfolios for exposure to European markets and repositioning holdings in anticipation of potential volatility is essential. By heeding these early signs, investors can protect their assets and potentially capitalize on a market shift that others may overlook until it’s too late.

In a time of heightened global uncertainty, being prepared for unforeseen outcomes is key to safeguarding investments. Investors need to stay informed and ready, and seek advice, insights and guidance to face these challenging conditions.

As Trump’s White House chances seem to approve, we’re sounding the alarm on US firms with heavy European ties and market dominance as retaliation is likely to be swift.

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.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author’s and not by association FNArena’s – see disclaimer on the website)

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