The local sharemarket is set to open lower this morning on the back of a global selloff of bank stocks and ahead of the first presidential debate between Donald Trump and Hillary Clinton.
We should see some of the momentum coming out of the local market on open, with a move sub 5400 expected. The rally that start on 14 September equated to close to 5 per cent, but indecision was seen in the price action yesterday and there was no conviction to push the move higher. The bears will have a greater say today.
The key markets to watch though are S&P futures and the USD. With many focusing on USD/MXN and also USD/CAD, given the ramifications on the Mexican and Canadian economies if Trump dominates the debate and gets a step closer to the Oval Office. USD/JPY is also a must watch for a move into ¥100.00.
But it really is a day where the participant's gets to sense check market moves against who performs the strongest. Donald Trump is the underdog (on paper), but he knows that and who knows if he sticks to the script his advisors provide and does his homework he could do well. The fact there is no ad breaks makes this uncharted ground for him and there is nowhere to hide if he is found out. He can't bully Hillary like he did to 'Little Marco' or Ted Crux, so we watch with fascination on how he plans to dominate and fact check Clinton. Game on.
1. ASX: We are expecting the ASX 200 to open at 5393 (a fall of 38 points or 0.7 per cent). BHP and CBA should open 0.9 per cent and 1 per cent lower respectively (based on their ADR's). Expect good selling in Japanese equities as well.
2. Europe: The German DAX fell 2.2 per cent with further banking concerns hitting the market. Deutsche Bank fell 7.5 per cent, taking its market cap to $16.37 billion, which many have put into perspective of the Department of Justice (DoJ) potential $14 billion fine. Consider they are expected to earn €867 million this year and are effectively beholden to ECB's negative rate policy, which not favourable at all given its deeply negative rate policy.
3. Equities: The S&P 500 has fallen 0.8 per cent, with financials and health care the underperforming sectors. Traders have been happy to hedge portfolio's, with the US volatility index (VIX) gaining 18 per cent. The US 10-year treasury fell 3 basis points to 1.59 per cent.
4. Stocks to watch: Twitter pushed up a further 3.3 per cent, adding to Fridays 21.4 per cent spike. As far as I can see we have Microsoft, Salesforce.com, Alphabet and Disney all potentially eyeing a bid. Recall, Twitter holds a position as fourth largest seller of digital advertising globally (ex-China), so for names like Alphabet the acquisition makes sense. The net present value (NPV) of any potential investment is the key sell to shareholders though.
5. Japan: In the FX market it is all eyes on USD/JPY, with traders eyeing a test of ¥100.00. The pair has traded to a low of ¥100.24 despite comments from BoJ chief Kuroda yesterday that 'there is no limit to monetary policy'. Watch for the daily close through the ¥100.00 level, rather than selling the initial break through the figure and getting caught in a likely stop loss run.
6. Aussie dollar: AUD/USD traded in a range of $0.7603 to $0.7649. Put AUD/CAD on the radar though, with the pair eyeing a break of the year's highs. The bulls look firmly in control here, but I would wait for a daily close above C$1.0124 before accumulating long positions. EUR/USD wants to break the May downtrend at $1.1285, so a closing break suggest the long position are preferred.
7. US election: It's unclear if traders bought volatility and portfolio protection due to today's first presidential debate, but naturally this makes sense. Many of the major policy initiatives and 'toughest proposals' (such as financial regulation) won't see the light of day unless we see one party control both the Senate and House, which seems unlikely. Still, we know three of the key topics today ('achieving prosperity', 'securing America' and 'America's direction') and it seems fair to say whoever makes Americans feel the most safe will do very well today. What we should learn today is how markets genuinely trade each candidate. If Donald Trump emerges as the victor and the USD rallies and S&P futures sell-off, it will provide confirmation of a trade many have already pre-positioned for. So the reaction in markets should be very telling today as we head into 8 November election. The action kicks off at 11:00 aest. Most feel Clinton is the best on paper, but it really depends on which Trump turns up and if he can stick to his advisors script!
8. Energy: Oil rose as much as 3.9 per cent in New York after slumping 4 per cent on Friday. While Saudi Arabia and Iran didn't reach an agreement after two days of preparatory talks in Vienna, the Saudis did offer to pump less crude if Iran caps output, according to two people familiar with the negotiations.
What happened yesterday
The Australian sharemarket shook off its negative start but failed to post a gain, ending flat as the two big consumer staple stocks, Woolworths and Wesfarmers fell on the threat of new competition.
The S&P/ASX 200 Index started the week lower as it followed Wall Street's weak Friday lead, before rising in the afternoon and bouncing along break even point. At close of trade, the benchmark Index was just 0.1 of a point higher at 5431.4, while the All Ordinaries ended 0.5 of a point higher at 5519.1.
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