Market participants remain on edge heading into the final week of the US election campaign. The markets are still positioned for a Biden victory, with an increasingly likely Blue-wave that would see the Democrats control both houses. Traders are still pricing in heightened volatility and a meaningful, albeit narrower, chance of a contested election result. The dynamic is keeping global equities volatile, with the benchmark S&P500 dipping -0.54 per cent last week.
Markets are pricing in a Joe Biden victory.Credit:Kevin Dietsch
Sentiment continues to swing on speculation about US fiscal stimulus. Congressional Democrats and the White House are reportedly moving closer to a deal, with the Trump administration upping its offer last week to nearly $US1.9 trillion ($2.7 trillion) – closer to the Democrats desired $US2.2 trillion. Despite the progress, the market remains sceptical on whether a package will arrive before the election.
Corporates across the S&P500 continue to outperform market expectations. Of the 134 companies that have reported, 85 per cent of firms have beaten analyst estimates – well above the historical average of approximately 72 per cent. Forecasts for EPS growth across the index for the quarter also improved last week to -16.5 per cent, up from -21.5 per cent at the start of the reporting period. Arguably, the biggest week for US earnings comes in the week ahead, with the likes of Apple, Amazon, Microsoft, Facebook and Alphabet reporting 3Q results.
The US recorded its biggest one day jump infections during the week, with over 80,000 new cases reported being recorded in the one day. The big concern for the market, however, has proven the deteriorating situation in Europe.
The European Central Bank, the Bank of Japan and Bank of Canada all meet; and although market expectations point to policy settings remaining on hold for each, interest will be in the economic guidance, and telegraphing of expanded stimulus in the future. This dynamic will be most pertinent for the European Central Bank, with market participants anticipating the central bank will expand its Pandemic Purchasing Program in coming months.
SPI Futures are indicating a slight lift in the ASX200 to begin the trading week. It follows a flat performance for the index last week, which saw it shed a modest -0.16 per cent. The market map was topped by a 1.8 per cent gain in IT stocks, with market-darling Afterpay surging above $100 per share for the first time. In the week ahead, quarterly CPI numbers highlights the economic calendar. It’s expected to show headline inflation jumped 1.5 per cent for the quarter, following last quarters -1.9 per cent contraction.
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