Overnight Report: Poster Child

By Greg Peel

Drugs, stimulus and thin air

The futures had already decided as early as Saturday morning that the afternoon plunge in the ASX200 on Friday, sparked by news of the president’s infection, was unnecessary. The president was being pumped full of drugs to date approved only for severe cases and by George, they appeared to be working.

Enough for a spin around the White House car park anyway. And as we learn that Trump will be back at home at 9.30am Sydney time, we can only conclude that the medicine has now advanced far enough that the virus can indeed be conquered.

Were it not for the complete obfuscation of the White House medical spokesman, refusing to confirm exactly when the president last tested negative, rendering his buoyant confidence suspect. And White House staffers continue to drop like flies.

On a separate issue, we have learned over the weekend that the federal budget due to be handed down tonight will include a bringing forward of the planned 2021 tax cuts and a massive infrastructure stimulus package.

Not much chance of getting on yesterday morning. The futures suggested up 67 points on Saturday but after ten minutes yesterday the ASX200 was up 120. From there it was only another 30 points more to the close. NSW, the ACT and South Australia were on holiday. The computers weren’t. Volume was thin.

While every sector closed in the green yesterday, there were notable variances.

The Nasdaq had led Wall Street lower on Friday night in its initial Trump reaction, hence our IT sector underperformed significantly yesterday with only a 0.7% gain. On the other hand, oil prices had dropped another -4% on Friday night but the US energy sector posted a solid session. Our energy sector fell -4% on Friday and rebounded 4% yesterday as oil prices rallied again in Asian markets.

But it were the banks that really made the difference yesterday, jumping a whopping 3.7%. US banks had fought back on Friday night, but any inducements from the Treasurer can only be good news.

Where will the infrastructure spending go? Utilities rose 3.0%. More money in pockets from the tax cuts (back-dated to July 1)? Both consumer sectors up 2.0%.

So on supposedly positive news out of the US, and a budget full of goodies at home, along with holiday thin-volume, the local market yesterday had its best session since June.

Everyone’s back today to figure out what to do next, although one presumes there will still be some caution ahead of what the rest of the budget might contain. The futures are up 26 points.

WFH, stimulus and FOMO

Either the drugs really are working, or Donald Trump is attempting to pull off the greatest election ruse in history. Even his unconvincing doctors admit the next few days remain critical, while allowing him to work from home. Home being the current US virus hotspot.

Of course, the forty plus thousand Americans (and counting) still being diagnosed with the virus every day do not have the same access to treatment as the president, who has effectively become the world’s guinea pig. But if the signs really are positive, then ultimately that must be positive for everyone.

No point in missing out. Safer to buy now and wait to see what happens.

Then there’s perennial “stimulus hopes”, fuelled yet again by Nancy Pelosi on Friday night. Wall Street still believes, or perhaps just wants to believe, that a deal can be reached before the election.

But what of the risk of a Blue Wave, in which the Democrats take all three houses – lower, upper and White? Biden remains comfortably ahead in the polls, and the president has had somewhat of a campaign setback.

Aside from the fact history proves Wall Street eventually takes a government of any stripe on board, and there’s no correlation between market trends under either party, it appears by now investors are factoring in a Biden victory and any risk associated with it. There are pros and cons – tax hikes versus infrastructure stimulus, for example.

Wall Street also likes to cherry pick the positive. The US services PMI rose to 57.8 in September from 56.9. That’s a big number, except when you consider non-essential services are effectively expanding back from zero.

Meanwhile, schools in New York are beginning to close once more, France has now joined the UK in re-shutting down bars, and in the hotspot states of the US sunbelt, bars remain open, crowded and mask-less even as case-counts surge again.

Wall Street remains cautious but positive, for fear of missing out.

Commodities

You’d think that connecting a president’s rapid recovery with a 6% jump in oil prices is a bit of a stretch, but that’s the explanation, along with a strike in Norway curtailing production.

Base metal prices continue to bounce around on thin, China-less volumes.

Perhaps the clearest sign of risk-back-on in the US last night were not stock markets, but a sudden 7 basis point jump in the US ten-year yield to 0.76%. Yet gold still managed a rally, helped by a weaker greenback.

The dollar index fell -0.4% but the Aussie is only up 0.1% at US$0.7184 with today’s RBA meeting and tonight’s budget looming.

Today

The SPI Overnight closed up 26 points or 0.4%.

Apart from the aforementioned, Australia will also see ANZ Bank job ads for September today and the August trade balance.

Baby Bunting ((BBN)) and Saracen Mineral Holdings ((SAR)) hold their AGMs.

The Australian share market over the past thirty days…