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An Election Day eve rebound on Wall Street has handed the ASX a shot at back-to-back gains for the first time in almost three weeks.
Aussie index futures edged up five points or 0.1 per cent as the Dow put on more than 400 points.
Caution prevailed ahead of a session when the Reserve Bank will play a major role. The central bank meets this morning burdened by the expectation it will unveil a swathe of stimulus measures this afternoon.
Wall Street
US stocks rebounded from their worst week since March. The Dow Jones Industrial Average led a recovery ahead of tonight’s presidential election. The blue-chip average rallied 423 points or 1.6 per cent as lingering weakness in tech stocks was outweighed by strength in industrial powerhouses Honeywell and Dow Inc.
The S&P 500 bounced 40 points or 1.23 per cent from Friday’s near six-week low. The Nasdaq Composite trailled with a gain of 46 points or 0.42 per cent as tech giants Apple, Amazon, Microsoft and Facebook declined following poorly-received trading updates last week.
Buyers returned as an NBC News/Wall Street Journal poll gave Joe Biden a ten-point lead over Donald Trump. The poll indicated 52 per cent of registered voters backed Biden, versus 42 per cent for Trump. The result sharpened hopes tonight’s vote will produce a clear winner.
“If you’re really short, you’re really betting that everything has to go wrong at this point,” CNBC’s Jim Cramer said. ”[The market] really got oversold last week and it’s entirely possible that we elect someone [tonight].”
Industrials, solar power companies and small caps have benefitted in recent weeks from expectations they would outperform under a Biden administration. The former Vice President is tipped to launch a huge stimulus package and encourage a move to greener energy.
Market sentiment was boosted by news of a surge in new orders as factory activity accelerated last month. The Institute of Supply Management’s manufacturing index jumped from 55.4 to 59,3, its highest level since November 2018. The new orders sub-index soared to its highest level since January 2004.
Australian outlook
While tomorrow will be all about the US election, today belongs to the RBA. The Reserve Bank meets this morning and will release a policy update at 2.30 pm. The ASX’s RBA Rate Indicator indicates an 84 per cent chance the cash rate will drop from 0.25 per cent to 0.1 per cent. The bank is also expected to unveil other quantitative easing measures that may drive investors into stocks in search of yield.
Traditional yield sectors shone here yesterday. Utilities and real estate were the day’s best performers. Notable high-yielding winners included AGL Energy, APA Group, AusNet Services, Telstra, ANZ and NAB.
“I think investors are positioning themselves ahead of [today’s] RBA decision,” ThinkMarkets Market Analyst Carl Capolingua said. “It won’t be the 0.15 per cent cut in official rates the market is expecting that exacerbates the hunt for yield, it will be the announcement of further quantitative easing measures. If the RBA announces they’re going to buy longer dated bonds to push down the long end of the yield curve, the dividend yields on these and other high yielding stocks are going to look very attractive indeed.”
Investors in the speculative end of the market will hope for an easier session after some bloodletting yesterday. The small-cap and emerging ends of the market have outperformed since March, but traded against yesterday’s broader market up-trend. While the S&P/ASX 200 put on 0.4 per cent, the Small Ords (XSO) lost more than 0.5 per cent. The Emerging Companies Index (XEC) fell a hefty 1.9 per cent.
The energy and materials sectors shone brightest in the US overnight as risk appetite improved, rising 3.7 and 3.4 per cent, respectively. The tech, consumer discretionary and communication services sectors trailled with gains of less than 0.4 per cent.
The dollar benefitted from a broad move from ‘risk off’ to ‘risk on’, rising 0.71 per cent to 70.57 US cents.
Commodities
Gold stocks rose as the precious metal logged a second straight advance. The NYSE Arca Gold Bugs Index put on 2.6 per cent. Gold for December delivery settled $12.60 or 0.7 per cent ahead at US$1,892.50 an ounce.
Oil scored its first rise in four sessions amid speculation recent weakness will force the Organization of the Petroleum Exporting Countries and allies (OPEC+) to postpone planned production increases. Brent crude settled $1.03 or 2.7 per cent higher at US$38.97 a barrel.
Iron ore’s slow creep higher continued. The spot price for ore landed in China rose $1.10 or 0.9 per cent to US$119.05 a tonne. BHP’s US-listed stock inched up 0.02 per cent after its UK-listed stock gained 1.15 per cent. Rio Tinto put on 1.09 per cent in the US and 1.62 per cent in the UK.
