Markets Steady Before US Presidential Election

By 10am (AEST) this morning the majority of polling for the US presidential election will be closed and by some time later this afternoon, we expect to get a result. The latest polls suggest that Clinton is still in the lead and the market certainly believes this with gains in the US stock indices for the past two trading sessions. The Dow Jones closed up 0.4% after being up 0.7% at one point earlier in the session. Headlines are dominated by election coverage but the markets are treading cautiously at the moment, with the trading session showing relatively low volatility. The Australian market was relatively subdued yesterday, with the ASX 200 managing a 0.13% gain. The Australian market fell much further than the US stock indices in the lead up to the election (likely on fear of a Trump victory) and therefore a Clinton victory should lead to some kind of relief rally in our market.

As a barometer for risk sentiment, the 0.25% fall in the gold price overnight is consistent with the small rally in stocks. Gold currently hovers at around US$1,275 per ounce, still off its recent lows at US$1,250 but struggling to make any further upward progress. The US dollar index was slightly up and currently holds near six month highs at 97.92. Despite this rise in the $US, the Aussie dollar has rallied to 0.7765 from 0.7700 earlier. This puts the AUD at the upper end of a trading range established over the past several months although there isn't yet any indication that it has broken out of this range.

Oil was steady overnight, with WTI trading at $44.81, still well off recent highs reached amid optimism around the possibility of an OPEC deal to freeze or cut production. That optimism has faded as the oil market becomes increasingly sceptical of a deal being reached as Saudi Arabia and Iran argue over the details of the agreement. API reported crude inventories climbed again this week although crude products (gasoline and distillates) both had large draws. These results added some volatility to the market but ultimately the price settled near its previous levels.      

Late yesterday England Manufacturing Production rose 0.6%, more than the 0.5% expected. Relatively good economic numbers out of England recently have bucked the expected trend of a slowdown following the vote to leave the EU. Although the process still has a very long way to go, the economy is holding up well so far, notwithstanding significant falls in the British Pound.

The markets will be focused on the results of the US election for at least the next couple of days however I expect this to quickly shift to upcoming events. Eventually, market focus will shift back to the December meeting of the Federal Reserve Board where members will decide whether to raise interest rates. Market implied probabilities continue to suggest a high chance of a quarter point rate hike.  

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Data releases:

·         Australian Westpac Consumer Sentiment 10:30am AEDT

·         Japanese Current Account 10:50pm AEDT

·         Chinese CPI & PPI (MoM Oct) 12:30pm AEDT

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This article was written by William O'Loughlin – Local Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3600.