The Overnight Report: Horses & Presidents

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A cautious tone is likely to prevail ahead of today’s Melbourne Cup race, the RBA rate decision, plus the US presidential election tomorrow morning Sydney time.

World Overnight
SPI Overnight	8159.00	– 29.00	– 0.35%
S&P ASX 200	8164.60	+ 45.80	0.56%
S&P500	5712.69	– 16.11	– 0.28%
Nasdaq Comp	18179.98	– 59.93	– 0.33%
DJIA	41794.60	– 257.59	– 0.61%
S&P500 VIX	21.98	+ 0.10	0.46%
US 10-year yield	4.31	– 0.05	– 1.19%
USD Index	103.81	– 0.39	– 0.37%
FTSE100	8184.24	+ 7.09	0.09%
DAX30	19147.85	– 107.12	– 0.56%

ANZ Bank this morning:

US stocks slipped, bonds rose, and the USD fell as the so-called Trump trade’ unwound ahead of what’s looking like a very close presidential race.

Polls, surveys and betting markets show both candidates neck and neck, with results within the margin of error.

That’s adding to concerns that a contested result might drag out the uncertainty, adding to market volatility. The S&P 500 was down -0.1%, the Euro Stoxx 50 fell -0.5% and the FTSE 100 rose 0.1%.

The yield on the US 10y bond fell -8.7bp to 4.30%. WTI lifted to USD71.5/bbl, while Gold was at USD2,739/oz.

OPEC’s move to delay output hikes triggered a rally across energy markets. A weaker USD also provided some support across the rest of the commodities complex.

By Chris Weston, Head of Research, Pepperstone

Good morning.

We roll from US trade into Asia, with traders likely to face tight ranges and a solid dose of sideways chop, as the collective looks to further massage exposures for what will be a period of a headline-driven and reduced liquidity environment.

Many have already trimmed back on short US Treasury positions, as they have on the day with USD longs, with traders looking to tackle the next few days with a less pronounced USD long position. The FX channels and specifically USD rates, are the cleanest expressions of the US election, where the outcome of the election is far more binary and clearly understood.

Harris takes North Carolina (NC), and the USD finds sellers. Should she then claim Pennsylvania (PA) and tariff risk premium will be rapidly priced out of the USD, and we’re back to trading Thursday’s FOMC meeting in a far cleaner capacity.

Conversely, should Trump take NC and PA, and USD longs will rapidly rebuild, and we turn our attention squarely to the House vote to really go to work on USD upside, conditional on the REPs gaining control here.

We may not know the House outcome until after Thursday’s FOMC meeting, which if Trump has been declared president prior to the Fed meet, suggests the cross-asset moves could be contained and the meeting proves to be a lower volatility event if the Fed/Powell are indeed seen as dovish relative to market pricing in rates, then selling USDs/buying Treasuries comes with inherent risk, as a potential red sweep would get the USD well and truly fired up.

These are therefore the conditions in which the algos (through natural language processing) interpret headline news and execute positioning in a fraction of a second and we simply can’t compete in our reaction function. There will be opportunities for intraday traders with a higher risk tolerance, depending on the strategy deployed of course, but when the USD pairs are being thrown around on headlines, one must be mindful that running a tight stop loss on an intraday trade, when a state outcome is called, could see that stop triggered quick enough.

The outcome of the election is less clear in US equity markets, and specifically at an index level. One can make a compelling case for near-term equity downside in both a Trump and Harris outcome, just as we can on the upside potential.

This throws up the notion of tactically refraining from positioning for any election scenario and reacting dynamically when the facts become clear and when the collective in the market has given their view on what an outcome means for the equity indices. If one is to subscribe to the idea that the outcome of the election could set off a trend in the price action, where the first move could extend, then this tactical approach seems prudent.

Making life more of a challenge for equity and index traders is the fact that many have gone hard on buying options volatility to hedge against the risk of increased movement in the S&P500, NAS100 and Russell 2k on different days this week. 

In essence, the level of hedging activity has the potential to lead to some powerful intraday reversals in the various US equity indices and futures markets and it’s often these flows to which many try to put fundamental reasoning to. But if we get to a point through the US election where traders start to reduce volatility hedges, then it could lead to some fairly pronounced intraday reversal playing through.

Looking at the intraday tape of the S&P500 on the day we can see good selling activity play out a third of the way through US cash trade, although, the move didn’t last long with buying support kicking in at 5696, with the S&P500 ultimately finding a fair value and flat lining through the latter part of trade.

Digging into the internals on the day, 54% of S&P500 companies closed higher, so very much a balanced performance, with energy outperforming, taking in the tailwind of a 2.7% rise in crude. REITS also put in a strong showing with the US 10-year fell -9bp. We see utilities, communication services and healthcare lower on the day and underperforming.  

Turning to Asia, our calls suggested a mixed open for the respective equity cash markets, with Japan leading us higher, while we look for a soggy open in Australia.

One suspects it won’t take much for market players in the Australian market to switch their attention away from the central bank and to the Melbourne Cup, where volumes will likely grind to a halt, at least temporarily. 

On the calendar today:

-Macquarie Group’s quants are predicting Vauban as the winner of the Melbourne Cup later today.

-Australia Oct PMI

-RBA cash rate meeting

-Victoria Holiday

-China Oct PMI

-UK Oct PMI

-US Sept Trade Balance

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

Corporate news in Australia:

-Domino’s Pizza ((DMP)) CEO Don Meij will retire after 22 years leading the pizza business

-Spartan Resources ((SPR)) sells two gold projects to Benz Mining ((BNZ)) for $15.6m

-Santos ((STO)) finalises sale of 2.6% PNG LNG stake to Kumul Petroleum

-Retail Food Group ((RFG)) acquires Cibo Espresso for -$2.7m

-NextDC ((NXT)) secures $2.9bn refinancing

Spot Metals,Minerals & Energy Futures
Gold (oz)	2746.60	– 2.60	– 0.09%
Silver (oz)	32.62	– 0.06	– 0.18%
Copper (lb)	4.43	+ 0.06	1.28%
Aluminium (lb)	1.18	+ 0.01	0.65%
Nickel (lb)	7.21	+ 0.02	0.21%
Zinc (lb)	1.37	– 0.01	– 1.04%
West Texas Crude	71.71	+ 2.22	3.19%
Brent Crude	75.33	+ 2.23	3.05%
Iron Ore (t)	102.49	0.00	0.00%

The Australian share market over the past thirty days

Index	04 Nov 2024	Week To Date	Month To Date (Nov)	Quarter To Date (Oct-Dec)	Year To Date (2024)
S&P ASX 200 (ex-div)	8164.60	0.56%	0.06%	-1.27%	7.56%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AGL	AGL Energy	Downgrade to Accumulate from Buy	Ord Minnett
AMC	Amcor	Downgrade to Neutral from Outperform	Macquarie
COH	Cochlear	Upgrade to Neutral from Underperform	Macquarie
COL	Coles Group	Upgrade to Accumulate from Hold	Ord Minnett
CTD	Corporate Travel Management	Downgrade to Hold from Add	Morgans
CTT	Cettire	Downgrade to Hold from Buy	Bell Potter
JBH	JB Hi-Fi	Downgrade to Lighten from Hold	Ord Minnett
MIN	Mineral Resources	Downgrade to Sell from Neutral	Citi
NEM	Newmont Corp	Downgrade to Neutral from Buy	UBS
PMV	Premier Investments	Downgrade to Neutral from Buy	Citi
UNI	Universal Store	Downgrade to Accumulate from Buy	Ord Minnett
WES	Wesfarmers	Upgrade to Lighten from Sell	Ord Minnett
WGX	Westgold Resources	Upgrade to Buy from Accumulate	Ord Minnett
WOW	Woolworths Group	Downgrade to Neutral from Buy	Citi

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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