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With the FBI re-opening of the Clinton email case causing a tightening in the polls, it was case of “risk-off” across global markets last week on concerns Trump could win the Presidency. The other notable development was a slump in Crude Oil prices due to a rise in US inventories, and renewed doubts about OPEC's ability to agree on production cuts. The S&P 500 slumped for 9 days in a row - a feat not replicated since 1980. Despite the concerns, Friday's US payrolls report was solid, leaving the market still attaching a 75% risk to a Fed rate hike in December.
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Obviously the major issue on global markets this week will be the outcome of the US Presidential election. Given polls got the Brexit outcome wrong, there's understandable nervousness about the result, as a lot rides on eventual voter turnout. My thinking is this should be a two to four day wonder either way: a Clinton victory will produce a 2-day relief rally, while a Trump win would produce a 2-day slump, followed by 2-day relief rally. Washington will then revert back to its traditional gridlock, and we'll be back to focusing on the strength of the US economy and the Fed. From a technical perspective, the S&P 500 enters the week in a short-term oversold condition.
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The S&P/ASX 200 weakened in sympathy with global markets last week, not helped by RBA leaving rates on hold and retaining a relatively "neutral" policy outlook. Listed property bounced back a little, reflecting a flight to safety and the global "risk-off" easing in bond yields. Iron ore, meanwhile, continued its stunning advance, which, along with $US weakness, helped the $A firm.
- Apart from the US election, a local data focus will be the NAB business survey tomorrow, which should show continued solid business sentiment. The local Annual General Meeting (AGM) season also rolls on, with investors so far displaying a strong preparedness to punish or reward stocks depending on CEO updates of their earnings outlook.
The Wrap
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Equity markets will be focused on the US election early this week, but it should be a return to normal by week's end. On the assumption of a Clinton victory, I suspect global risk markets will bounce back solidly this week before a renewed focus on high equity valuations, wobbly global growth and imminent Fed tightening curbs investor enthusiasm once again by next week.
Have a great week!
Originally published by BetaShares