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A week of major event risks looks set to begin with an opening bounce despite a surge in coronavirus rates in Europe and America ahead of a US presidential election and an RBA rate decision.

Australian index futures rallied 52 points or 0.9 per cent despite further falls in the US at the end of Wall Street’s worst week since March. Some of that optimism may have drained during a weekend that saw England announce a second national lockdown and the US report back-to-back record-high Covid-19 tallies.

Wall Street

Investors are braced for a volatile week as Americans go to the polls with Covid-19 infection rates at a record high. The US reported all-time high tallies on Thursday and Friday. In Europe, England announced it will shut down for a month, following Germany and France back into lockdown.

Pre-election jitters helped trigger Wall Street’s sharpest retreat since March last week. The S&P 500 fell 40 points or 1.21 per cent on Friday to extend its weekly decline to 5.6 per cent.

The Dow Jones Industrial Average fared better on the day, but worse for the week. A late rebound trimmed the blue-chip index’s Friday loss to 158 points or 0.59 per cent and its weekly tally to -6.5 per cent. The Nasdaq Composite‘s fall of 274 points or 2.45 per cent pushed its weekly loss beyond 5 per cent.

Tech stocks led the retreat as investors punished companies whose quarterly updates failed to justify lofty valuations. Facebook slumped 6.3 per cent,  Apple 5.6 per cent, Amazon 5.5 per cent and Twitter 21.1 per cent. Alphabet bucked the trend with a rise of 3.8 per cent.

“There is a big sell-off in those big tech names because they didn’t live up to the hype and people are really worried about next week’s election,” Kim Forrest, chief investment officer at Bokeh Capital Partners, told Reuters.

Recent reports suggested former Vice President Joe Biden’s lead over incumbent Donald Trump in the race for the White House had tightened. However, the average of recent polling data compiled by RealClear Politics had Biden 7.2 points going into the weekend.

Australian outlook

The first session of a new month can bring unexpected moves as institutional traders reposition their portfolios. Nonetheless, this morning’s SPI200 futures figure looks bizarrely bullish for the prevailing risk environment. The S&P/ASX 200 finished Friday on the back foot, down another 0.6 per cent to extend its decline for the week to almost 4 per cent, the index’s biggest fall in six months.

The Covid situation in Europe and the US continued to deteriorate. Prime Minister Boris Johnson announced England will enter a second national lockdown until December 2 to prevent the National Health System being overwhelmed. Restaurants, pubs, gyms and non-essential shops will close. The US reported a record 99,321 new cases on Friday, eclipsing the previous day’s record.  

A huge week ahead brings a string of potential market-moving events, including a US election and RBA rate decision tomorrow. Wednesday promises to be especially volatile as results filter in from the US. The final result may not be known for days. The best-case scenario for investors is a clear victory for either candidate. A contested election and weeks of uncertainty would likely trigger further falls on financial markets.

The Reserve Bank meets tomorrow and is widely expected to cut the cash rate to a record-low 0.1 per cent from 0.25 per cent. Other measures are also anticipated to help stimulate the economy. The central bank is scheduled to update the market on its longer-term outlook for the economy on Friday with the release of a quarterly monetary policy statement.

This week brings earnings updates from three of our five biggest banks: Westpac this morning, NAB on Thursday and Macquarie Group on Friday. Earnings season continues in the US. The new month also brings a slew of domestic economic data across the week, starting with reports today on job ads, building approvals, manufacturing and inflation.

The dollar retreated 0.12 per cent this morning to 70.29 US cents as investors continued to favour the greenback, a traditional haven in times of uncertainty.

Commodities

The US energy sector edged up 0.2  per cent despite oil’s weakest finish in five months. Brent crude settled 32 cents or 0.8 per cent lower at US$37.94 a barrel. Oil declined 8.5 per cent last month as the spread of Covid undermined demand expectations.

Gold stocks rose as the precious metal trimmed a third straight losing month. The NYSE Arca Gold Bugs Index put on 2.1 per cent. Gold for December delivery settled $11.90 or 0.6 per cent ahead at US$1,879.90 an ounce. The yellow metal lost 1.3 per cent last week and 0.8 per cent for the month.

BHP and Rio Tinto finished mixed but minimally changed as iron ore crept higher. BHP’s US-listed stock closed flat and its UK-listed stock down 0.03 per cent. Rio Tinto gained 0.21 per cent in the US and 0.53 per cent in the UK. The spot price for iron ore landed in China improved $1.70 or 1.5 per cent to US$117.95 a tonne.

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