It was always likely that investors were going to be cautious in the lead up to next week’s US election. However, with polls suggesting that Donald Trump’s prospects are improving that caution is translating into nervousness. Traders were taking defensive action in international markets last night. Weaker US stock markets will see the local market open lower. The ASX 200 index seems likely to break below its 200 day moving average at 5260 today.
Donald Trump’s improved standing in the polls tends to neutralise this week’s Fed meeting as a market event. Even if the Fed does signal an inclination to lift rates in December, markets will take the view that this is unlikely if a Trump victory leads to uncertainty and a surge in financial market volatility. This view was played out in markets last night with the US Dollar falling sharply and gold rallying. Gold stocks are likely to be a bright spot in a generally gloomy stock market this morning.
China’s PMI data yesterday was encouraging. It shows a consistent, although low gear expansion supported by the domestic economy which is offsetting weak global trade. Copper and iron ore prices responded to China’s improved PMI data yesterday and a weak $US will also help. This should help support mining stocks today.
Oil, on the other hand, is continuing to retrace, despite the benefit of a weaker $US. Traders are selling on the assumption that there is now no prospect of Opec implementing an effective production ceiling in the near future