Stocks get factory data boost, but US election uncertainty looms

Asian markets, US stock futures rise on data showing factory activity growth but investors brace for contested election.

Asian shares were higher on Tuesday, with investors buoyed by data showing continued expansion in factory output in large economies.

But the dollar and gold held steady on political uncertainty ahead of elections in the United States.

US President Donald Trump and Democratic rival Joe Biden made a last-ditch push for votes in battleground states as the two camps prepared for post-election disputes that could prolong a divisive presidential election.

US stock futures traded higher, even though many market participants expect short-term volatility, especially after a jittery week. S&P 500 index futures rose 0.5 percent, pan-European EUROSTOXX 50 futures gained 1 percent and the UK’s FTSE futures put on 0.9 percent.

Strategists at Blackrock Investment Institute said polls were suggesting a greater likelihood of a Democratic sweep in the election.

“We are starting to incorporate themes we believe would outperform in that event, moving toward a more pro-risk stance overall despite last week’s market pullback,” the strategists said in a report.

MSCI’s broadest index of Asia-Pacific shares outside Japan added 1 percent, up for the second straight day. The gauge is just 1 percent shy of a 2-1/2 year high reached in mid-October and up 5 percent so far this year.

South Korea’s main index advanced 1.7 percent, markets in Hong Kong and Sydney rose 2 percent and mainland Chinese blue chips put on 0.8 percent. Japanese markets were closed for a holiday.

“We are upgrading Asia ex-Japan equities and Asia fixed income to overweight, as China and other Asian economies have done a better job of containing COVID–19 and are further ahead in the economic restart,” BlackRock Investment Institute said. “We expect this dynamic to continue over the months ahead.”

The US Dow Jones industrial average and its 200-day simple moving average [Bloomberg]

Factories crank up

Data showed economic activity was improving across the board.

US manufacturing activity accelerated more than expected in October, with new orders jumping to their highest in nearly 17 years, while Chinese factory activity expanded at the fastest clip in nearly 10 years and euro zone manufacturing also sped up.

Analysts said the prospect of there being no immediate winner in the presidential race was the biggest drag on markets. Trump trails Biden in national opinion polls, but surveys in the swing states that will decide the election show a closer race.

“The key for the stock market in the short-term is a concern over an uncertain and timely election result and the possibility of a disputed outcome,” said Marc Chaikin, founder of Chaikin Analytics, a quantitative investment research firm based in Philadelphia.

Australia’s ASX 200 gained the most in three weeks ahead of a widely anticipated cut in the benchmark interest rate by the country’s central bank.

The Reserve Bank of Australia cut its key interest rate to 0.1 percent from 0.25 percent and announced a new bond-buying programme to try and support its coronavirus-ravaged economy

Oil prices steadied after two weeks of selling, with Brent crude futures losing 0.1 percent to $38.90 per barrel, but hanging on to most of an overnight bounce.

Still, the uncertainty of the US election and a resurgence in COVID-19 cases in Europe and the US supported the dollar and gold prices, as some investors sought the perceived safety of these assets.

Gold was trading at $1,895.6 an ounce, while the dollar index – a gauge of the US currency against a basket of those from other large economies – held its ground at 94.027.

US Treasury bond yields were little changed.