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A new week dawns with the share market sitting at a three-week high with mildly positive leads and better clarity on the US election after Joe Biden won the race to the White House.
Australian index futures edged higher as Wall Street finished little changed on the final session of a spectacular week. ASX SPI200 futures rose 15 points or 0.2 per cent on Saturday morning. However, today’s performance will likely be dictated by the reaction to later events in the US.
Wall Street
Former Vice President Biden was declared winner of the US presidential election on Saturday by all the major US networks after securing the 270 electoral college votes needed to govern. Biden claimed victory in a speech where he promised to govern for all Americans.
Some of the shine was taken off Biden’s victory by sitting president Donald Trump‘s refusal to concede. Trump reiterated claims of electoral fraud and insisted his team will pursue legal challenges on several fronts this week.
The final make-up of the Senate looms as another potential market drag. The possibility of the Democrats controlling all three centres of US legislative power remains ahead of “run-off elections” in Georgia on January 5. A split Congress threatens to delay negotiations over a new stimulus package.
US stocks finished little changed on Friday as the election hung in the balance. The S&P 500 dropped one point or 0.03 per cent. The Dow Jones Industrial Average shed 67 points or 0.24 per cent. The Nasdaq Composite eked out a gain of four points or 0.04 per cent.
The mixed finish had minimal impact on bumper returns for the week. The S&P 500 put on 7.3 per cent during its best week since April. The Nasdaq gained 9 per cent and the Dow 6.9 per cent. The S&P 500’s rise was its strongest during an election week since 1932.
Reaction to Biden’s victory was mixed. “Biden is good news for the markets,” Christopher Stanton, chief investment officer at Sunrise Capital Partners, told Reuters. “We’re all so tired of the whipsaw that came with the Trump tweets.”
Billionaire investor Bill Ackman used the president’s favourite platform to urge him to stand down with dignity. “There comes a time in the battle when one should fold the tent,” he tweeted: “Concede graciously and call for unity.”
Australian outlook
The S&P/ASX 200 looks set to start the week within the 6200-6250 level that has acted as a ceiling since June. Investors will hope there is enough clarity on the US election, combined with the stimulatory effects of the Federal Budget and last week’s huge RBA package, to push the index decisively clear.
The market will have to a climb a “wall of worry” that besides the election fallout includes deteriorating relations with China and escalating Covid-19 numbers. Last week’s electoral circus overshadowed a dramatic escalation in tensions with our largest trading partner. Chinese state media confirmed “import suspension” of seven Australian products – copper ore and concentrate, wine, lobsters, sugar, coal, barley and timber – effective from last Friday.
A Global Times report used as a mouthpiece by the Chinese government accused Australia of “sabotaging bilateral relations”. The import ban threatens exports worth up to $6 billion a year. The bans came into effect the same week China’s President Xi Jinping declared his country’s “unswerving commitment to further opening up its market to global businesses”.
While Australia continued to open up, coronavirus numbers soared in many parts of the world. The US, Canada, Italy and France reported record single-day tallies last week. Portugal declared a health emergency. Greece enters a second lockdown this week.
AGM season continues with meetings at Wesfarmers (today), Fortescue Metals (Wednesday) and Woolworths (Thursday). Commonwealth Bank is due to release a quarterly update on Wednesday. Telstra holds an Investor Day on Thursday. Earnings reports are due tomorrow from Incitec Pivot, James Hardie and Avita Therapeutics. Updates are listed later in the week from Graincorp, Xero and AusNet.
The economic calendar is lighter this week. Business confidence figures are due tomorrow and consumer sentiment on Wednesday. On Wall Street, there is little to distract from the political circus until inflation figures and an appearance by Federal Reserve Chair Jerome Powell in a panel discussion of monetary policy at the end of the week. The quarterly earnings season enters its last week.
The dollar remains a potential headwind, lingering near multi-month highs despite the RBA’s best efforts to drive it lower. The Aussie climbed 0.2 per cent this morning to 72.75 US cents. The local currency has been in a steady uptrend since bottoming at 55.08 US cents in March.
Commodities
Energy was the worst-performing US sector on Friday, falling 2.1 per cent as the demand implications of surging Covid cases weighed on oil. Brent crude settled $1.48 or 3.6 per cent lower at US$39.45 a barrel. Analysts at Commerzbank said oil agencies were likely to revise their demand forecasts downwards this week in response to renewed lockdowns in Europe.
Gold stocks inched higher as gold touched a seven-week high. The NYSE Arca Gold Bugs Index gained 0.15 per cent. Gold for December delivery settled $4.90 or 0.3 per cent higher at US$1,951.70 an ounce.
BHP and Rio Tinto recorded solid gains in overseas action. BHP’s US-listed stock rose 2 per cent and its UK-listed stock 1.92 per cent. Rio Tinto gained 3.49 per cent in the US and 2.88 per cent in the UK. The spot price for iron ore landed in China advanced 65 cents or 0.6 per cent to US$118.10 a tonne.
