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Shares look set to reverse yesterday’s tumble after US stocks hit all-time highs on hopes of higher spending as the Democrats edged towards control of the Senate.
A volatile session saw Wall Street finish off its highs after supporters of President Donald Trump stormed Capitol Hill, delaying the formal declaration of President-elect Joe Biden. One Republican politician branded the riot “a coup attempt”.
Australian futures wound back gains as events unfolded in Washington DC. ASX SPI200 futures ended the night session 98 points or 1.5 per cent ahead.
Wall Street
An extraordinary night saw US stocks touch new highs as US media projected a Democrat sweep of the Georgia Senate runoffs. Victory for Raphael Warnock and Jon Ossoff would tie the upper chamber at 50:50, giving Vice President-elect Kamala Harris the deciding vote. The Democrats would then control the White House, House of Representatives and Senate, clearing the way for Biden to advance his policy agenda.
The Dow Jones Industrial Average surged more than 600 points before trimming its tally to 438 points or 1.44 per cent as riots enveloped the Capitol Complex. The S&P 500 finished 21 points or 0.57 per cent ahead. The Nasdaq Composite fell 78 points or 0.61 per cent amid fears of tougher legislation for tech stocks.
“I think there’s an expectation… that there’s going to be a lot more spending,” Jason Trennert, chairman of Strategas, told CNBC. “If the Democrats were to pick up two seats, there’s no question in my mind that later this year there would be a sense that more spending is needed.”
NBC News called one of the Senate runoffs for Democrat Warnock. Democrat challenger Ossoff held a narrow lead over Republican incumbent David Perdue in the other race.
Vice President Mike Pence was evacuated from the Senate floor as Trump supporters breached security at the Capitol Complex. The Senate chamber was evacuated shortly after lawmakers began counting the Electoral College votes, a step towards formally declaring Joe Biden President. Republican Representative Adam Kinzinger branded the riot “a coup attempt”.
Winners and losers
The rate-sensitive financial sector soared 4.4 per cent as US ten-year treasury yields topped 1 per cent for the first time since March. (Higher yields tend to boost the margin lenders make on loans.)
Sectors and stocks expected to benefit from higher spending surged. Industrial powerhouse Caterpillar jumped 5.6 per cent in anticipation of increased investment in infrastructure. Solar power and medicinal cannabis were other sub-sectors to see strong gains. Tech stocks slumped amid fears of higher taxes and tougher legislation.
Value stocks outpaced growth stocks. The Russell 1000 Value Index jumped 2.4 per cent, versus a 1 per cent slump in the Growth Index.
Australian outlook
Events moved quickly this morning, creating considerable uncertainty about today’s prospects. Assuming the Capitol Hill riot is contained without significant damage, the S&P/ASX 200 looks set to recoup all of yesterday’s losses, plus some more. However, market sentiment may shift amid reports of injuries and shots fired in the House Chamber. These are unprecedented scenes in American democracy.
The local market was wrong-footed by yesterday’s afternoon collapse in US futures. Ultimately, the prospect of a short-term stimulus shot from an unfettered Biden presidency won out over longer-term concerns about taxation and tighter restrictions. In other words, gains from potential winners outweighed losses from potential losers.
Sector movements in the US primarily reflected domestic political concerns. Financials were the clear winner, but rising US bond yields tend to be negative for traditional Australian yield plays because money flows back to the security of the US bond market. The US materials sector gained 4.1 per cent on expectations of higher demand for infrastructure spending. Energy stocks gained 3 per cent. The tech sector dived 1.8 per cent.
Economic news is unlikely to gain much traction in this atmosphere. For what it is worth, trade and building approvals data are due at 11.30 am AEDT.
The dollar hit a 33-month high overnight, breaking above 78 US cents for the first time since Aril 2018. The Aussie was last up 0.5 per cent at 77.99 US cents after rising as high as 78.2 cents.
Commodities
US gold stocks held their ground as chaos on Capitol Hill helped offset a 2.3 per cent slump in metal prices. Gold for February delivery settled $45.80 lower at US$1,908.60 an ounce as US bond yields soared. The NYSE Arca Gold Bugs Index eased 0.2 per cent.
Oil settled above US$50 a barrel in the US for the first time since February. West Texas Intermediate crude climbed 70 cents or 1.4 per cent at US$50.63 a barrel.
Mining giants BHP and Rio Tinto stormed higher in overseas trade. BHP’s US-listed stock added 3.15 per cent and its UK-listed stock 5.62 per cent. Rio Tinto gained 4.45 per cent in the US and 6.02 per cent in the UK. The spot price for iron ore landed in China climbed 80 cents or 0.5 per cent to US$167.95 a tonne.
