Join our daily newsletter At The Bell to receive exclusive market insights
The ASX looks primed for its highest open in two weeks after US stocks rose on bets a split Congress means minimal policy change, whoever wins the White House.
The prospect of what Japanese bank Mizuho branded “Goldilocks Gridlock” helped lift the S&P 500 almost 2 per cent and the Dow Jones Industrial Average more than 500 points. ASX index futures climbed 42 points or 0.7 per cent.
Wall Street
US stocks rose for a fourth night, extending their biggest weekly advance since April as the race for the White House remained undecided. The S&P 500 soared 67 points or 1.95 per cent overnight, extending this week’s relief rally gains beyond 7 per cent. The Dow Jones Industrial Average put on 543 points or 1.95 per cent. The Nasdaq Composite added 300 points or 2.59 per cent as tech giants outperformed.
Former Vice President Joe Biden led incumbent Donald Trump by 264:214 electoral college votes, with four states still counting. Either candidate needs 270 votes to carry the race. Trump would need to win all four battleground states to retain the presidency. The president’s campaign team filed legal challenges in several states.
Wall Street cheered the prospect of a Republican-controlled Senate and a Democrat-controlled House of Representatives. A split Congress was seen by many as the ideal outcome because it preserves the status quo and minimises the risk of major policy changes.
“It looks likely that we’ll see a split Congress, which, based on history, has been the preference of the stock market,” Lindsey Bell, chief investment strategist at Ally Invest, told CNBC. “You can see this expectation being priced into the market.”
“Investors like gridlock because there’s really not a big chance of legislative surprises,” Megan Horneman, director of portfolio strategy at Verdence Capital Advisors, said.
The Federal Reserve left its short-term borrowing rates at record lows. Chair Jerome Powell said growth remained well below pre-pandemic levels but said the Fed had more options to stimulate the economy.
Australian outlook
The mood on financial markets has turned sharply from the Covid-lockdown despair of last week to this week’s ‘no new laws!’ post-US election euphoria. The S&P/ASX 200 jumped 1.3 per cent yesterday and looks to have ample fuel for more gains today.
The market may run into technical resistance around the 6200-6250 level that has proved a ceiling to previous advances. However, this week’s shock-and-awe RBA stimulus package, combined with Federal Budget stimulus measures appear to offer a solid platform for a breakout once this month’s overseas risk events have passed. The biggest threat in the short term appears a drawn-out court battle for the White House.
The two sectors most important to the ASX – materials and financials – were standouts in the US overnight, alongside technology. The materials sector climbed 4.1 per cent as gold stocks soared. Financials gained 2.5 per cent and technology 3.1 per cent.
A quarterly monetary policy statement is due from the RBA at 11.30 am EST. The statement will flesh out the central bank’s latest thinking on labour markets, economic conditions, inflation and other factors that contributed to this week’s decision to cut the cash rate and launch a $100 billion quantitative easing program. The Australian Industry Group’s Performance of Services Index is also due this morning.
The dollar surged to its highest level in six weeks. The Aussie advanced 1.5 per cent or more than a cent to 72.85 US cents.
Commodities
Gold stocks saw stellar gains after weakness in the greenback helped fire the yellow metal to a near seven-week high. The NYSE Arca Gold Bugs Index surged 7.6 per cent. AngloGold Ashanti gained 7.2 per cent, Barrick 6.9 per cent and Newmont 4.3 per cent. Gold for December delivery settled $50.60 or 2.7 per cent ahead at US$1,946.80 an ounce.
“The market is telling us that a large part of the gold price correction was due to the uncertainty relating to the upcoming election,” the editor of Gold Newsletter, Brien Lundin, told MarketWatch. “While there’s still plenty of uncertainty remaining, gold bulls are at least somewhat reassured and expecting significant stimulus regardless of the eventual outcome.”
Oil retreated during yesterday’s Australian trading hours, finishing with its first loss in four sessions. Brent crude settled 30 cents or 0.7 per cent weaker at US$40.93 a barrel.
BHP and Rio Tinto were drags on the ASX yesterday, but gathered momentum as the 24-hour trading cycle reached the US. BHP’s US-listed stock gained 2.5 per cent after its UK-listed stock added 1.03 per cent. Rio Tinto rose 2.08 per cent in the US and 1.17 per cent in the UK. The spot price for iron ore landed in China dipped 20 cents or 0.2 per cent to US$117.45 a tonne.
