The US market pullback held key support after President Trump’s tweets on fiscal stimulus. This is likely to see the market either pull back a little here or just sit sideways. It will be interesting to see if he back peddles on this in the coming weeks.
Markets are all over the place, with most markets whipping around for the last few months. The AUD was down overnight, as was gold and silver, giving back some of the gains. Bond yields were back down, as people switched from equity back to bonds. This could last a few days until it reverts again.
The sentiment in the US is still very mixed for the month ahead as there is a lot of key news to come. US quarterly reporting is kicking off next week and US elections early Nov. They are still meeting on a fiscal stimulus bill, which could also affect sentiment in the short term.
It is likely the market will receive lasts night’s budget well, the majority of the budget was focused on job creation, growing business, and infrastructure spending.
A deficit is expected into 2031 but will decrease considerably every year.
Gross debt is expected to increase over the forward estimates before stabilising at around 55 percent of GDP in the medium term. The US currently sits at 106.90 percent of GDP. So, by comparison, Australia is faring very well.
The underlying cash balance in 2020-21 is expected to be a deficit of $213.7 billion, equivalent to 11.0 percent of GDP
Looking at the response since the Covid-19 outbreak, the government has injected $299 billion into the economy with another $213.7 billion expected this financial year. This equates to $512 billion of fiscal stimulus in just 2 financial years. This will eventuate to a higher stock market, just in the short term we might need to get on the other side of the US election.
The XJO is expected to open flat this morning. With negative leads from the U.S, we likely would have fallen with them, but the federal budget released last night was largely seen as positive for our market and is likely buoying our open this morning. U.S futures are sitting in the red and if they remain so during our session today, our market is likely to follow suite to some degree.
With U.S stimulus off the table, the virus still spreading, and U.S elections around the corner, there is little to positive about in the short term. Locally though, it is the opposite: we have the virus under control (fingers crossed), we have stimulus, and a good budget. In addition, our market is not broadly overbought like perhaps the U.S is.
The issue of course is our market rarely likes to disconnect from the U.S. What is perhaps more likely is that local positive news will help keep our market buoyed against falls overseas. Indeed, do not be surprised if we see extended sideward movement between now and the U.S election.
US shares fell overnight after US President Trump announced that he was ending talks on a fourth round of fiscal stimulus until after the election. This is despite a renewed warning from Federal Reserve Chair Jerome Powell that the US economy is struggling and would require further stimulus.
There was also some aftermarket selling after a US Congress panel proposed some more stringent anti-trust reforms to curb the power of some tech giants. Overnight we saw US trade balance data, which showed a greater trade deficit than expected. Tech stocks led the selling overnight, with Oil & Gas stocks also seeing some selling despite strength in oil prices. Utilities were the only stocks to close higher.