Morning Minutes 11/3/2020

Morning Minutes

US Election Day Relief Rally; New Australia Stimulus

November 3, 2020

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

With the long and divisive US election campaign finally coming to an end today, stock markets around the world have been climbing overnight, adding to yesterday’s gains. In the US, Dow futures are up 1.5%, S&P futures are up 1.2% and for the second day in a row, NASDAQ futures are lagging behind with a 0.7% gain. Overseas markets have been even stronger with the Dax, FTSE and Hang Seng all rallying 1.9%-2.0%, while the Nikkei gained 1.4%.

The US Dollar is staging an election day slide, falling 0.5% against the Canadian Dollar, the Euro and the Pound. Gold and Silver have taken advantage of USD weakness, climbing 0.5% and 1.4% respectively and with gold regaining $1,900/oz. Commodities are also higher this morning with WTI and Brent Crude both up 3.0% and copper climbing 0.7%.

This week’s gains so far appear to be driven by a sense of relief among investors that the long and divisive US election campaign is finally over. Uncertainties remain that have the potential to significantly impact investor attitudes and confidence in the coming days. First, is whether or not there is a clear winner. Back in 2000, when the election result was contested and the battle dragged on for weeks, stock markets which hate uncertainty came under pressure. While there could be civil unrest following the vote, the experience from earlier this year suggests protests may capture more attention from the media than from the market.

If there is a clear winner, in terms both of the White House and Congress, focus then may turn to broader policies with Democrats favoring more stimulus but also more taxes and the potential for more lockdowns as has been happening in Europe. Republicans have been calling for a smaller stimulus package but seem less likely to raise taxes or impose new lockdowns. There’s a lot for markets to consider, including the potential impact of who wins on specific stocks and sectors.

Speaking of stimulus, Australia, which has been coming out of its second wave and a winter (in the southern hemisphere) lockdown, has increased monetary stimulus overnight. The Reserve Bank of Australia cut its benchmark rate to 0.1% from 0.25% and announced a $100B increase to its bond purchase program to be conducted over the next six months.

Overnight earnings reports have been mixed. Wayfair is up 11.1% in premarket trading today after crushing street estimates on earnings per share ($2.30 vs street $0.80). Paypal, on the other hand, is down 5.5% premarket despite beating the street on earnings ($1.07 vs street $0.94) after guidance for next quarter came in below expectations ($0.97 vs street $1.07).   In Canada, fertilizer producer Nutrien announced lower profits despite rising sales as prices fell, and also announced an $823M writedown in its phosphate fertilizer division.

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