Global Market Report - 4 November

Australia

Australian shares are set to fall despite a rally on Wall Street overnight as investors bet a drawn-out US vote would hasten a stimulus deal.  

The Australian SPI 200 futures contract was down 10 points, or 0.2 per cent, to 6,042 points at 8.30am Sydney time on Wednesday, suggesting a negative start to trading.

US stocks rallied on Tuesday as Americans voted in one of the country’s most turbulent presidential elections and investors bet it would be decided without a drawn-out process, leading to a swift deal on more fiscal stimulus.

The Dow Jones Industrial Average rose 561.94 points, or 2.09 per cent, to 27,486.99, the S&P 500 gained 60.98 points, or 1.84 per cent, to 3,371.22 and the Nasdaq Composite added 202.02 points, or 1.84 per cent, to 11,159.64.

Locally, the RBA cut its targets for interest rates including the overnight cash rate, three-year bonds and its term funding facility for banks to a record low of 0.1 per cent, from 0.25 per cent, and set a target of $100 billion for its quantitative-easing program that will buy federal and state government bonds on the open market.

The RBA's decision on Tuesday to cut the cash rate and optimism from US investors contributed to the best session for Australian shares since 5 October.

The S&P/ASX200 benchmark index closed up 115.1 points, or 1.93 per cent, to 6,066.4 on Tuesday. The All Ordinaries closed higher by 115.4 points, or 1.88 per cent, to 6,262.8.

Gold was up 0.7 per cent at $US1,908.39 an ounce; Brent oil was up 2.2 per cent to $US39.81 a barrel; Iron ore was down 0.8 per cent to $US117.09 a tonne.

Meanwhile, the Australian dollar was buying 71.54 US cents at 8.30am, up from 70.45 US cents at Tuesday’s close.

Asia

In China, all major indexes all finished higher on Tuesday amid optimistic trading sentiment.

The benchmark Shanghai Composite Index shot up 1.42 percent to close at 3,271.07 points, thanks to strong performances of the nonferrous metals and IT sectors.

The blue-chip CSI300 index ended up 1.2 per cent.

Hong Kong shares ended higher on Tuesday, boosted by the energy and financial sectors, following global equity markets higher as strong factory output data from major economies underpinned sentiment ahead of US elections. 

Around the region, MSCI’s Asia ex-Japan stock index was firmer by 0.98 per cent, while Japan’s Nikkei index closed up 1.39 per cent.

At the close of trade, the Hang Seng index was up 512.91 points, or 2.1 per cent, at 24,938.44.

Europe

Banking and auto stocks propelled the European stocks benchmark to a one-week high on Tuesday, while investors anticipated a clear win for Democrat Joe Biden in the US presidential election would lead to more economic stimulus.

The pan-European STOXX 600 closed 2.3 per cent higher—its best day since mid-June. Bourses in Frankfurt, Paris and London saw similar gains.

Stock markets worldwide found strength in signs that Biden held a strong and consistent lead in national opinion polls over Republican President Donald Trump, although the race is tighter in several swing states.

A Biden win is widely considered to be supportive for European equities in the near-term because of expectations it would mean a bigger stimulus package and better trade ties with the US.

Banks led gains among European sectors, with French lender BNP Paribas jumping 6.1 per cent as a surge in currency and commodity trading helped it beat quarterly profit estimates.

The automobile & parts sector, which has borne the brunt of the Trump administration's trade war with China, gained 3.5 per cent.

Boosting the index, luxury automaker Ferrari surged 7.1 per cent after it forecast 2020 earnings at the top of its previous guidance range as new models such as the hybrid SF90 Stradale start to reach customers.

Insurers, financial services companies and construction & materials were the other top gainers.

“Even though last minute surprises from the US vote can’t be ruled out, I believe European equities are close to a very interesting turnaround point which could mean a more ‘structural’ return of investor interest towards the region,” said Michele Pedroni, portfolio manager at Decalia Asset Management in Geneva.

“Any reversal, however, could be jeopardised should the crisis triggered by the coronavirus pandemic drag on for too long, given that Europe has limited political and economic manoeuvre space to progressively provide support to its economy,” he added.

The STOXX 600 shed almost 6 per cent last week as soaring coronavirus cases pushed major economies including France, Germany and the United Kingdom back into partial lockdown, leading economists to cut fourth-quarter economic growth expectations.

Among other individual movers, British homebuilder Crest Nicholson surged 16.5 per cent after it reinstated its dividend and said annual earnings would top market expectations.

German meal-kit delivery company HelloFresh, which has more than doubled in value this year as lockdowns drove demand, slipped 1.2 per cent after quarterly results.

North America

US stocks rallied on Tuesday as Americans voted in one of the country’s most turbulent presidential elections and investors bet it would be decided without a drawn-out process, leading to a swift deal on more fiscal stimulus.

Democrat Joe Biden’s lead over Republican President Donald Trump in national opinion polls has raised expectations for a decisive outcome and a post-election stimulus package that would make good on Biden’s promises of infrastructure spending.

Some analysts said the market’s strong gains reflected a rebound from a selloff last week, the biggest weekly percentage decline for the S&P 500 in over seven months.

“As much as the polls say one thing, I think we all know anything can happen,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

“We do know if it is Biden there most likely will be more stimulus and at least initially a lubing of the system with that free money but then in the back end of that you have corporate tax hikes, you’ve got more regulation, you’ve got things the market doesn’t like.”

US stock index futures plunged on Election Night 2016 as it became apparent Trump could pull an upset victory against Democrat Hillary Clinton. The benchmark S&P 500 has since risen 55 per cent as Trump’s lower tax rates boosted corporate profits and share buybacks.

The Dow Jones Industrial Average rose 561.94 points, or 2.09 per cent, to 27,486.99, the S&P 500 gained 60.98 points, or 1.84 per cent, to 3,371.22 and the Nasdaq Composite added 202.02 points, or 1.84 per cent, to 11,159.64.

Gains were broad, with 10 of the 11 major S&P sectors on the plus side, led by financials, up 2.57 per cent and industrials, up 2.84 per cent while investors pared some bets on post-vote volatility that dominated in recent weeks. The CBOE Volatility index VIX hit a one-week low after hitting a 4½ month high last week.

Not all of the stock sectors analysts identified as likely winners from a Democrat sweep were up, with marijuana and renewable energy companies lower.

Democrats are also favored to emerge from 14 hotly contested US Senate races with full control of Congress, although final results from at least five of those contests may not be available for days, or months in some cases.

Some view the races in hotly contested swing states as close enough that Trump could piece together the 270 Electoral College votes he needs to stay in the White House another four years.

The S&P banking subindex surged 3.06 per cent to its highest in more than a week, while industrial stocks gained, with Caterpillar Inc up 2.34 per cent and Honeywell International Inc up 3.24 per cent.