- SPI futures are down 5 points, or 0.1%, and hint at a weak start for the benchmark ASX200
- A spending-heavy federal budget – and the prospect of more US stimulus – helped the local bourse cap its best week in six months with a fifth straight rise on Friday
- US stocks also ended the week higher, with both the S&P 500 and NASDAQ recording their best week since July, as optimism grew over fiscal aid
- The Aussie dollar was worth US72.28c at 8.30am AEDT and over the weekend climbed to a near three-week high of US72.42c
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Global markets are being driven by speculation over the outcome of the US election and the prospect of an agreement for fresh fiscal stimulus in the world’s largest economy.
Despite little clarity emerging last week on either subject, market sentiment was bolstered last week as a shift in the polls towards a “Blue Wave” result at November’s election lead market participants to price-in an even bigger fiscal stimulus package.
VIX Futures flattened, while the US yield curve steepened, as concerns about a contested election result diminished. Hopes of Democrat President along Democratic control of Congress opened the possibility of a clean passage of the Democrats’ preferred $US3 Trillion spending package next year.
The benchmark S&P500 finished the week 3.8 per cent higher as a result of the dynamic. While renewed hope for bigger stimulus and the so-called “reflation-trade” saw growth sensitive assets and value factor stocks pick-up, and small cap stocks outperform their large-cap counterparts.
The dynamic also drove an outperformance in the heavily value-factor weighted ASX/200, which, supported by the Australian Federal Government’s big-spending budget, rallied 5.36 per cent to record its strongest weekly performance since April.
As market participants prepare for the new trading week, the ASX/200 is looking at a neutral start to Monday’s trade. SPI Futures are indicating a 5 point drop at the open, ahead of a week dominated by global-macro risk events.
Speculation about the size and shape of a US fiscal stimulus package will remain the primary issue for the market, with investors resigned to the notion political grid-lock in Washington will mean a package won’t be delivered before election day.
The coronavirus and lockdowns will also remain a significant issue for the markets, as outbreaks in Europe casts doubt about a global economic rebound, and a stubborn case curve in Victoria forces delayed reopening of the state’s economy this month.
Another concern for the markets will be the commencement of US earnings season for the third quarter this week.
It’s tipped to be another dour reporting period for S&P500 companies, with consensus estimates compiled by Bloomberg pointing to a 39 per cent contraction year-over-year in earnings growth.
The economic calendar is relatively light this week compared to last. But local jobs data is released on Thursday, along with a speech to be delivered RBA Governor Philip Lowe on the same day.
Economists are estimating that the Australian labour market shed 35,000 jobs last month, with the unemployment rate tipped to climb back to 7.1 per cent.
Sharp focus will be on Governor Lowe’s speech, after the RBA chose to keep interest rates on hold at its meeting last week.
The markets are pricing-in an almost certain easing of monetary policy next month, with interest rate futures implying a lowering of the cash rate and the 3-year bond yield target to 0.1 per cent.
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This column was produced in commercial partnership between The Sydney Morning Herald, The Age and IG. Information is of a general nature only.
Salutations! And welcome to a new week with the Markets Live team.
Your editors today are Alex Druce and Lucy Battersby. The ASX200 is set for a weak start, with futures narrowly lower.
If you’ve got news, tips, or you spot something interesting, drop us a comment!
This blog is not intended as financial advice
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