The Overnight Report: And Exhale

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By Greg Peel

The Dow closed up 371 points or 2.1% while the S&P gained 2.2% to 2131 and the Nasdaq added 2.4%.

As You Were

With the overnight futures pointing down another 29 points yesterday it was looking for all the world like we were set to test the Brexit low in the local market until the timely news from the FBI hit the wires. It seems a stretch that a sufficient number of Americans would swing from Clinton to Trump and back to Clinton again on the whole email charade, but hey, that’s America.

And there’s no denying Trump’s ascendency accelerated when last week the FBI re-opened the case, and no denying global markets did nothing but fall in the meantime. So whatever the case, the FBI news was always going to provide for a reversal. Risk on.

The 1.3% bounce in the ASX200 began from the open yesterday and gradually built further over the course of the session as traders watched the Dow futures rise steeply. The rebound was market-wide, with the stand-outs being healthcare, up 2.0%, energy, up 1.9% despite another fall in the oil price, and the banks, up 1.8% with a little help from a reasonable result from Westpac ((WBC)) and an unchanged dividend.

The yield sectors also managed to rebound and materials gained 0.8% despite the drag from gold miners, which featured heavily in the top ten biggest decliners on the day as the Trump hedge unwound.

From the “Just in case anyone noticed” desk we see that ANZ’s job ads series showed a 1.0% rise in October following a flat September. Job ads are trending at 4.8% annual growth which remains encouraging, although that’s down from 11.4% a year ago.

On the other hand, we also saw Australia’s construction PMI plunge to 45.9 in October from 50.9 in September. Regular readers will know I’m always sceptical of Australia PMIs as they are so, so volatile compared with those of other large economies. However, this one is not hard to accept. Construction contracted in all four segments of the PMI in October – engineering, commercial, housing and apartments.

Engineering is still your mining/gas decline and commercial should see a rebound based on last month’s building approvals data. It is residential that has economists worried, although it appears apartments are still selling like hotcakes in Sydney. The inevitable end of the housing boom will, many economists believe, prompt the RBA back into action.

But for now, it’s all about the soap opera that is the US election. Not that it would be a soap opera anyone would watch – it’s just too ludicrous.

Sympathy For The Devil

The odds of a Trump victory have blown out with the bookies, the Mexican peso has shot up, gold has shot down, the US dollar is up 0.8%, the US ten-year yield is up 5 basis points at 1.83%, the VIX had dropped 16% as traders bail out of option hedges and the Dow is up almost four  hundred. Even oil’s up. We might assume Wall Street does not want to see Trump win.

Indeed, the best possible result for Wall Street under the circumstances now seems the most likely. The devil they know, being Clinton, will be in the White House but the Republicans will control the House, ensuring policy deadlock. That means the government will struggle to interfere and everyone can get on with it.

We might just wait one more night to see whether this actually is the case – hopefully only one more night. If the result is not immediately clear we’ll be heading straight back down again. As we know from Selina Meyer’s experience, an even number of electoral collages means the result can actually be a tie.

From the “Just in case anyone noticed” desk we see that 88% of S&P500 stocks have now reported earnings for a 4% net beat over analyst estimates. While it’s the best result in six quarters, it will be the earnings season that history forgot in the face of one of the most historically compelling elections.

Commodities

Gold is down US$23.10 at US$1281.10/oz.

“Risk on” did not exactly sweep the LME. Bellwether base metal copper is up 2%, which might point to some Clinton exuberance, but nickel’s 6% jump lends more to the pending environmental decision in the Philippines. Aluminium stood still, zinc was up a bit and lead was down a bit.

Iron ore jumped nevertheless, up US$2.10 to US$66.80/t.

West Texas crude is up US68c at US$44.87/bbl.

The US dollar index is up 0.8% at 97.74 which on any other day should have the Aussie tumbling, but on the danger that Trump would pose to the US-Australia alliance and trading partnership the Aussie is up 0.5% at US$0.7714.

Today

The SPI Overnight closed up 10 points. Seems a bit underdone on a 2% Wall Street rally, but then we had first mover advantage yesterday.

There is an election in the US tonight.

While we wait, we’ll see Chinese trade data today and the local NAB business confidence survey.

Commonwealth Bank ((CBA)) will wrap up bank results season today with a quarterly update, while results are due from DuluxGroup ((DLX)) and Incitec Pivot ((IPL)). News Corp ((NWS)) will report quarterly earnings.

Newcrest Mining ((NCM)) and REA Group ((REA)) are among those holding AGMs and Macquarie Group ((MQG)) will go ex.

Rudi will connect with Sky Business later today, through Skype, to discuss broker calls at 11.15am.
 

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