Trump diagnosis adds to growing market volatility
Local investors are preparing for a volatile start to the week after US President Donald Trump’s COVID-19 diagnosis added an extra layer of complexity to the risks already facing markets.
The local sharemarket plunged in the last hours of trading on Friday to finish down 1.4 per cent for the session. In the US the S&P500 fell 1 per cent and the tech-heavy Nasdaq index dropped 2.2 per cent after news of the positive test broke on Friday.
The added uncertainty adds to fears over the US election and evidence that the global recovery is stalling with a recent batch of weak economic data, including US Non-Farm Payrolls, showing the global economy is losing steam.
The US VIX, known as the ‘fear’ index, rose last week and has priced in even greater uncertainty around the US election period.
Amid the turmoil of US politics, along with clear evidence of another wave of COVID-19 infections in parts of the Northern Hemisphere, President Trump’s illness will be the main driver of markets this week. Market participants will spend the new few weeks speculating about the status of his health and its impact on the US election and the fiscal stimulus.
Despite headwinds for the market last week, sharemarkets rebounded with US equities posting their first weekly gain in four weeks. The rise was led by defensive sectors and small caps, as rhetoric coming out of key US policymakers about the likelihood of a pre-election US fiscal package turned more constructive.
The SPI 200 Futures is up 1.5 per cent to 5853 implying the initial shock of President Trump’s illness has already been priced into the market.
The lift in global stocks during the week failed to inspire the local market, with the ASX 200 clocking-up another week of losses. The declines for Australian stocks were broad-based, with only the local tech sector finishing the trading week in positive territory.
Locally, investors will be closely watching the Reserve Bank of Australia’s latest cash rate decision and the federal government’s budget announcements.
The consensus in the market is that the government and the RBA will coordinate a “Team Australia” moment: a big spending budget from the government and an easing of monetary policy from the RBA. Market analysts are factoring in slightly greater odds of the RBA cutting the cash rate from 0.25 per cent to 0.1 per cent.
The budget is expected to contain a raft of tax cuts, infrastructure spending, employment support, investment incentives and industry subsidies, that will see the budget deficit balloon to more than $200 billion.
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