Overnight: Any Result Will Do

By Greg Peel

Funny Old Session

The ASX200 did very little from the open yesterday, suggesting a quiet day in which investors would sit on the sidelines watching the tally. Then just before 11am the index plunged -80 points, spun on a dime at 12.30pm sharp, and by 2.30-ish was up 30 points.

Then it closed flat. If all you knew was the index was down -4 for the session, you’d think that made perfect sense with the numbers only just starting to come in in the US.

It is hard to see that the day’s volatility could reflect swings and roundabouts in the vote-count. Perhaps we could say Trump was looking a little better early than expected, but really there must have been more going on than just that given very early counting.

But it’s done, and in fact we could say yesterday’s session was more about domestic issues than international ones.

In the wake of RBA easing, the banks have cut fixed rate mortgages to below 2%. Financials fell -1.0%.

Pendal Group ((PDL)) also made a contribution there in falling -8.0% on its quarterly result – a bit more than it jumped on Tuesday ahead of the result.

Gladys will reopen the border with Victoria this month (sticking a finger up to the north). Flight Centre ((FLT)) rose 6.1% and Webjet ((WEB)) 5.0%, helping consumer discretionary up 1.0%. Sydney Airport ((SYD)) rose 2.1%, and industrials 1.5%.

Woolworths reported September quarter sales and fell -0.7%. Staples fell -1.1%.

A trading update from Nanosonics ((NAN)) was worth 12.5%, Megaport ((MP1)) rose 6.6%, Nearmap ((NEA)) 5.6%, and IT rose 2.7%.

The iron ore price fell, so Fortescue Metals ((FMG)) dropped -4.6% and materials lost -1.0%.

Not a lot going on elsewhere.

So as we can see, it was a rather home-grown session, so what the hell was going on in the middle of the day is anyone’s guess.

With a result looming closer in the US, our futures are up all of 9 points.

2016, 2000?

It is well established that stock markets are apolitical. Bull markets and bear markets occur equally under presidents of either stripe.

For two days heading into the election, Wall Street rallied on the assumption of a clear Biden victory and the possibility of a Blue Wave based on the polls. Notwithstanding the polls had predicted a similar result for Hillary.

The rally was led by value and cyclicals, by industrials and banks, and anyone who stood to benefit from a substantial stimulus package that would sail through a Democrat Senate. Tax Hikes? Well, we can live with those if we get that stimulus.

Growth, particularly Big Tech, sat it out. Big stimulus meant higher bond yields, and bond yields were similarly rallying, and higher bond yields discount future growth.

The greatest fear up to that point was that it would not be a clear-cut result and it would be contested by Trump, leading to weeks and perhaps months of legal battles before a result could be called.

Everyone remembers George W/Gore in 2000, and the Supreme Court stepping in.

Well guess what? That’s now a distinct possibility.

When Trump effectively claimed victory last night our time, the Dow fell as much as -350 points. At lunchtime in the US last night, the Dow was up over 800 points, with battleground states hanging in the balance, and the Republicans on track to retain the Senate.

In 2016, when Trump won, the Dow fell a few thousand points initially and then staged one of the sharpest rallies in history into 2017.

So why did Wall Street rally again, having rallied for two days prior?

If this were an American football match, we could say the offensive team replaced the defensive team and the lead was held.

Big Tech soared, sending the Nasdaq up over 4% at one stage. In the S&P500, industrials, materials, utilities and the banks all fell on the day. The standout sector gains were posted by Communication Services (Facebook, Google), information technology (Apple, Microsoft), consumer discretionary (Amazon) and healthcare.

For all other sectors it was thanks for playing.

Had a Blue Wave been the result it was feared the Democrats would push hard on the antitrust issue. They’re not out of the woods, but it is assumed a Republican Senate may not be as aggressive, and split Congress may hold things up for years.

While Republican Senate leader Mitch McConnell has already surprised by suggesting they could still get a stimulus bill through before year-end, it will not be anywhere near as large. The US ten-year yield fell -11 basis points to 0.7%.

Healthcare? We may recall that early Democrat front-runners Sanders and Warren ran on a platform of universal healthcare. While Biden is more to the centre, a Republican Senate ensures it ain’t gonna happen. There was also a likelihood the Democrats would go harder on the drug pricing issue.

History shows Wall Street performs best under a split Congress.

Biden was tentatively called winner by the news services in Wisconsin this morning, and Trump has already called for a recount. A recount is allowed within a certain vote-count tolerance but this differs in each state. Still in the balance are Michigan and Pennsylvania, with the count in the latter not expected to be completed until Friday. Trump is gearing up for those states as well.

Wall Street did come back from its initial highs, but it appears a positive spin can be put on any ultimate result.

A footnote: the ADP private sector jobs report showed 365,000 new jobs added in October when 600,000 was forecast. Non-farm payrolls on Friday.

Wall Street has other things on its mind.

Commodities

When the LME closed last night the vote counting had only just begun.

A -0.1% fall for the US dollar index and a big plunge in bond yields should by rights have gold surging, but no.

A Republican Senate would do its darndest to upset Biden’s renewables plan, which includes ceasing subsidies for Big Oil. Oil prices thus rose.

The Aussie is up 0.4% at US$0.7174, with the US ten-year yield falling once more. Lowe can’t take a trick.

Today

The local market is not set to join in the fun, it seems. The SPI Overnight closed up 9 points.

The Fed meeting will conclude tonight.

The Bank of England is also meeting tonight, virtually.

Australia will see revised September trade numbers.

National Bank ((NAB)) reports earnings today while Genworth Mortgage Australia ((GMA)) and Goodman Group ((GMG)) provide quarterlies.

There’s a long list of AGMs today including Amcor ((AMC)), Coles ((COL)), Flight Centre ((FLT)), nib Holdings ((NHF)) and Treasury Wine Estates ((TWE)).

Breaking news (as I write): Biden has just been given Michigan.

The Australian share market over the past thirty days…