The Monday Report – 21 October 2024

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SPI futures on the S&P/ASX 200 are up 0.5%, inching the benchmark back up towards its all-time record high following a retreat on Friday.

On Friday, the S&P500 notched its 47th all-time high buoyed by robust US earnings. Year to date, that index is up some  24%.

The local ASX200 ex-dividends has gained in excess of 9% thus far to date, with October adding 0.16% thus far.

By Chris Weston, Head of Research, Pepperstone

Good morning.

The event risk calendar errs on the lighter side this week, which could result in a greater focus on the increasing slew of company earnings, as well as US election risk, potentially resulting in changes in cross-asset implied volatility and a rising cost to hedge against movement in the USD pairs and portfolio risk. 

US, UK, and EU corporate earnings increase in frequency, with 19% of the S&P500 market cap set to report, and this could offer tactical traders the opportunity to capture the volatility that earnings and company guidance offer.

On the economic data side, we see a raft of tier 2 (typically less impactful) releases in the US, although the Fed’s Beige Book may get some increased airtime given the Fed recently emphasised that they have upweighted this input in their thought process.

PMIs in the Eurozone, UK, and US may get some attention and most-so in Europe, where after the move down to EURUSD to 1.0811, the risk is we see a more pronounced rally on better data, than a further decline on a miss.

The Bank of Canada should cut rates by -50bp to 3.75%, although this upscaled cut is largely priced, and the reaction in the CAD should therefore come from the level of appetite for another -50bp cut in the following meeting in December.

The PBoC should cut the 1 & 5-year Prime Rate by -20bp respectively, although how influential further easing proves to be in China/HK equity and the CNH is up for debate, as market participants may be feeling a sense of policy easing fatigue.

While in central bank land chatter, through the week we hear from 10 Fed speakers, 4 BoE speakers (including Gov Bailey x3), 15 ECB speakers, RBNZ Gov Orr (24 Oct 00:00 AEDT), and RBA Deputy Governor Hauser.

Given the limited tier 1 US economic data this week, the risk is that the US election and US company earnings get increased focus.

Both Gold and silver closed on their respective highs on Friday, highlighting the strength in the move as the sellers simply stood aside.

In the ETF space, we can observe huge volume in both the GLD and SLV ETFs on Friday’s close.  

Equity risk Sensing a change in the risk v reward trade-off

Turning to equity risk, for the past two weeks I have gone into the new week suggesting that those positioned long of various equity indices would be feeling good about life.

I’m not sure much has really changed, with the Fed likely to cut by -25bp in November, but US data are still highly supportive of risk-taking, and company earnings look solid.

However, with the market likely to look more closely at US election expressions this week, if traders choose to increase hedges around Trump tariff risk, a push above 20% in the VIX index would indicate markets are growing increasingly nervous about the negative effects tariffs could have on US company margins, where a one-off rise in the price level could weigh on real consumption and impact US GDP estimates.

It feels like the risk vs reward trade-off for initiating new longs in the S&P500 and NAS100 is shifting, and the same can be said for the ASX200, NKY225 and EU equity indices.

However, an open mind and an intent to react dynamically to the ensuing price action and the underlying flows will serve traders well.

A break and hold above 5927 in S&P500 futures and above 20,680 in NAS100 futures would keep the bullish momentum in check and negate any concerns of market players looking to de-risk into the election at least for the week ahead.

On the calendar today:

-Fireside Chat RBA Deputy Gov

-Amotiv ((AOV)) AGM

-Charter Hall Long WALE REIT ((CLW)) AGM

-Charter Hall Social Infrastructure REIT ((CQE)) AGM

-Nick Scali ((NCK)) AGM

-South32 ((S32)) Qtrly update

-Stockland ((SGP)) AGM & Qtrly update

-Worley ((WOR)) AGM

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

Corporate news in Australia:

-The scandal around WiseTech Global ((WTC)) CEO Richard White’s alleged inappropriate/predatory behaviour towards single women continues to build

-Mineral Resources’ ((MIN)) Chris Ellison admits offshore tax evasion scheme after self-reporting millions to ATO for lenient penalty

-Bloomberg reports Asia gears up for its biggest IPO wave since 2022, possibly raising US$8.3bn across 20 listings as markets prepare for the US election

-Telix Pharmaceuticals ((TLX)) files to list on Nasdaq

-Cuscal sets IPO pricing at $2.50 per share to raise $338m, valuing the company at $479.1m

-BHP Group ((BHP)) and Vale are a step closer to finalizing a deal with Brazilian authorities to provide a multibillion dollar settlement for one of the country’s worst mining disasters

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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