The Australian market looks set to open flat after Wall Street shrugged off a drop in oil to rally as consumer confidence jumped and banking shares rebounded.
The strong performance by Hillary Clinton against Donald Trump in the first presidential debate had a major impact on markets as some of the Trump-related hedges saw a pullback.
Locally, RBA Assistant Governor (Financial System) Malcolm Edey will speak at the Australian Financial Review retail summit in Melbourne, while in equities news, ASX and AGL Energy hold their annual general meetings in Sydney.
1. US Election: Clinton's opinion poll numbers had been taking a hit since she called half of Trump's supporters "deplorables" and a video of her collapsing from pneumonia at the 9/11 commemoration raised doubts about her physical fitness (a rumour being peddled by a lot extreme pro-Trump websites). Her strong debate performance may well be enough to halt Trump's recent momentum in the polls, although it will take a number of days before published opinion polls can put some numbers on it.
2. ASX: Local shares set to open slightly lower, with futures pointing to a 5-point drop
3. Equities: On Wall St, Dow +0.7%, S&P 500 +0.6%, Nasdaq +0.9%. In Europe, Stoxx 50 -0.2%, FTSE -0.2%, CAC -0.2%, DAX -0.3%
4. Gold: A number of safe haven assets had been bid up during the Trump poll surge as investors worried about what Trump would mean for the global economy, and particularly the global security risks he poses. Gold saw its biggest one-day decline in more than a month losing 0.8% as Trump's probability of becoming president was seemingly diminished after his poor showing in the debate. A strong showing in US consumer confidence and the flash Services PMI also helped drive gold down.
5. Currencies: A similar story was seen in the FX markets with the Japanese yen weakening noticeably during the debate, but closing up the session relatively unchanged. The biggest moves were in the emerging markets FX space with the Mexican peso rallying 2.3% against the USD after suffering a selloff as Trump surged in the polls. Trump's virulent attacks on the NAFTA free trade agreement with Mexico and Canada and his unwavering commitment to building a "big, beautiful wall" between the USA and Mexico are seen as a clear negative for Mexico should he win the presidency.
6. Emerging markets: Emerging markets and commodity-related currencies also benefited with the Aussie dollar gaining 0.4% to close at US$0.7665 after reaching intra-session highs of US$0.7696.5) EEM, the major emerging markets ETF in the US, managed to recoup much of its Monday losses as it gained 1.4% overnight. ASHR, the Chinese A-shares ETF, also gained 1%.
7. Energy: Oil, however, was far more concerned with the prospects for an OPEC deal than with the US election. WTI oil dropped 3% overnight as Iran said it did not want to freeze at a nominal output level, rather it said it would cap its production at around 13% of any new OPEC output ceiling. Saudi Arabia was keen to downplay the likelihood of a deal at this meeting, but emphasised that it provided the basis for a deal later this year. Iran is in a very strong bargaining position given that the lifting of sanctions has outweighed the effects of the ongoing oil price weakness, while Saudi Arabia's fiscal situation continues to deteriorate.
8. Bonds: As concerns over the European banking sector hit all of the major European bourses, there was a renewed rally in the bond market. The 10-year German bund continued to reverse its recent selloff with its yield plummeting to -0.143% - its lowest level since July. Finland was a new entry into the negative yield club over night with its 10-year bond reaching negative territory for the first time.
What happened yesterday
Despite global market sentiment picking up after Hillary Clinton was judged the winner in the first US presidential debate, Australian shares didn't manage to claw back all of their earlier losses.
Technology and telecommunications stocks weighed heavily on the local index and a faltering oil price saw energy stocks sold off also. The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index each fell 0.4 per cent, to 5405.9 points and 5493.7 points respectively.
This column was produced in commercial partnership
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