US election – global markets on fire ahead of the vote

The market seems to be saying Clinton has the election in her sights. Judging by the strong moves in healthcare (globally), the view is that we’ll see the Democrats take back the Senate and the Republicans retaining the House - although the race for the Senate is actually a 50/50 proposition.

Capitol Hill
Source: Bloomberg

The S&P 500 has rallied 2%, with good gains in healthcare, tech and financials, and volumes are in-line with the 30-day average.

These leads provide a great read through for Asia, although much of the gains in US equities have already been priced into Asian stocks. In US trade, materials stocks have largely underperformed, but then again they have been comparatively better performers of late. Still, the commodity story is one that we simply have to look at in a positive light, and while it is not a new story, the ferocity behind the buying is like standing in front of a freight train and will do wonders for Australia’s trade deficit if prices can hold at current levels. Overnight, we saw copper at +2.2%, gaining for an incredible eleventh day. Spot iron ore has gained 3.7%, with futures (Dalian exchange) +2.9%. Steel and coking coal futures have gained 3.8% and 4.2% respectively and have remained the poster boy of all things speculation in China. There must be a real fear of missing out (FOMO) underway in the Chinese trading community – we even saw egg futures (traded on the Dalian exchange) rally 3.5%!

BHP should open around 1.3% higher, but it’s the mid- and smaller-cap names that are on fire here. SGM (Sims Metal Management) looks like a thing of beauty right now. Names like OZL (Oz Mineral) and SFR (Sandfire) are also breaking out and looking like a trend and momentum trader's dream. Put these stocks on the radar, it seems this is the place to go hunting in the Aussie stock market, despite already having a run.

The ASX 200 enjoyed a 1.4% rally yesterday and SPI futures are up a more modest 12 points from the 5pm (AEDT) overnight re-set. Whether traders fade today’s open or carry on buying in earnest is the question of the day. If I had to make an assumption, it would be that further upside prevails. The leads are very bullish (but baked in, to a degree), though have the gains come from a position adjustment (short covering) or are we seeing genuine buying? The S&P 500 has rallied back above 2116 (a key resistance level), the US volatility index has lost 17% with far more hedging to unwind still, and emerging market assets are flying, with the EEM ETF (iShares Emerging market ETF) having its best day since March (+3.3%).

Traders are focused on the outcome of the US Electoral College vote, and while various estimates have been thrown around, they all have Clinton wining, with anywhere between 274 to 322 seats (the victor needs 270). If Clinton takes Florida, then it will be goodnight Vienna for Trump and campaign over. From what I can see, Clinton is getting the edge here with the potential 29 College votes Florida provides. North Carolina is also a toss-up, with Clinton seemingly pulling ahead in Nevada and New Hampshire. Trump seems to have picked up steam in Ohio and Missouri.

The AUD has also benefited from moves in metals and bulks, and AUD/USD is right in the $0.7700 to $0.7750 sell zone. A break of $0.7750 would take the pair into the April high of $0.7835 and from there a test of $0.8000. This is all well and good if our terms of trade are going berserk like they are. The bigger moves have been seen against the JPY, with AUD/JPY breaking above the 2015 downtrend. Stay long this pair for now, I would be trailing stops below ¥79.27.

In terms of event risk, I suspect today’s NAB business confidence print at 11.30am (AEDT) will do little to alter market sentiment (regardless of the actual print). The same could be said for China’s October trade data (no set time) where the surplus is expected to increase to $51.7 billion, with exports expected to fall 6% and imports drop 1%. Late yesterday, we saw China’s October FX reserves fall $46 billion to $3.12 trillion. While many will talk about sizeable capital outflows from China and the potential headwind to growth, be not alarmed, as this was a result of valuation and changes in the holdings of its reserves, as opposed to pure capital leaving China.

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