Virus focus returns following US election

Stocks surged across the globe last week as the US election risk passed. The S&P500 recorded its best week since April, climbing 7.32 per cent, supported by a significant drop in the US dollar, and as the VIX index dropped from 41 to 25 by the week’s close.

The surge in US stocks paradoxically came in large part to due a pricing out of a Democrat “Blue Wave” and the large-scale fiscal stimulus it was expected to bring, with a drop in US bond yields underpinning an outperformance in US tech stocks. Locally, the ASX 200 added 4.32 per cent.

The S&P 500  recorded its best week since April, climbing 7.3 per cent.
The S&P 500 recorded its best week since April, climbing 7.3 per cent.Credit:AP

VOCID-19 back at the forefront

With the focus squarely on the US election, the pandemic went under the radar for market participants last week. As the dust settles on the election, the health and economic impacts of the virus are likely to return to the fore in the week ahead, as the crisis continues to spiral out of control in both the US and Europe. European Union nations are continuing to move towards tighter lockdowns, raising the risk of a double-dip recession for the economic bloc. In the US case numbers are exploding, with more than 130,000 infections reported on Friday alone.

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US earnings season

Profit reporting season in the US will wind down this week, as a relative shift in focus away from US politics allows market participants to return to issues of market fundamentals. It has been a strong reporting period overall for US companies. According to financial data company FactSet, of the 89 per cent of companies that have reported results, 86 per cent have exceeded analyst estimates, with the expected contraction in earnings per share growth across the S&P500 falling to 7.5 per cent. Companies such as Intel, McDonald’s and Walt Disney report this week.

Aussie dollar on the rise

The Australian dollar rallied last week as market participants priced-in a Joe Biden presidency. The improvement in sentiment bolstered the AUD/USD, which outperformed its G10 counterparts as traders discounted the expectation of improved US-China relations under a Biden presidency. Though the Australian dollar remains well off its year-to-date highs, the risk of further upside for the currency will frustrate the Reserve Bank of Australia, which launched its new QE program last week in large part to suppress its rise.

Listen to the Short Squeeze, our weekly markets podcast produced in conjunction with IG: This column was produced in commercial partnership between The Sydney Morning Herald, The Age and IG. Information is of a general nature only.

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Source: Thanks smh.com