Market Close Nov 03

Asian markets load up on risk but volatility looms

US Treasuries burdened by stimulus-linked fiscal concerns;  China stimulus, RBA move and PMI data boosts optimism; Volatility looms for world markets

Asian markets load up on risk but volatility looms
Democratic US presidential nominee and former Vice President Joe Biden speaks during a drive-in campaign rally at Heinz Field in Pittsburgh, Pennsylvania. Photo: Reuters

Hong Kong: Investors loaded up on risk after a string of positive PMI numbers lifted sentiment even as US President Donald Trump and Democratic rival Joe Biden wound up their campaigns ahead of an election that will have policy implications for years ahead.

Sentiment was also boosted by a Xinhua report that China will step up counter-cyclical adjustments to the macro economy and Australia’s stock market was propelled by the central bank’s decision to provide more stimulus to reinforce the nascent economic recovery.

The Reserve Bank of Australia lowered the cash rate target, the three-year yield target and the interest rate on new drawings under the Term Funding Facility to 10 basis points, from the current 25 basis points. It said it will  remain at the current level “for at least three years” and would provide more stimulus if necessary.

ASIA EIGHT: Today’s must-read snapshot from the Asian trading day

It also said it would buy A$100 billion ($70.4 billion) of government bonds with maturities of around five to 10 years over the next six months, a move seen as aggressive by some.

“Such additional easing announced by RBA comes at a time of green shoots for the Australian economy but rising risks externally,” said Alicia Garcia Herrero, Natixis Chief Economist, Asia Pacific.

“Two important ones come to mind, namely new Covid19 waves in Europe and beyond but also an increasingly tense relation with China which has resulted in banning certain Australian exports. All in all, today’s RBA’s is music to the ears of Australia’s housing market”

Electoral College

Japan’s Nikkei 225 index added 1.39%, Australia’s S&P ASX 200 surged 1.93% and China’s CSI300 added 1.20% but Hong Kong’s Hang Seng index outperformed with a 1.96% surge. Regionally the MSCI Asia Pacific index climbed 0.97%.

In the day’s ahead, markets will brace for volatility as the electoral process unfolds in a closely contested battle.

“Joe Biden leads Donald Trump sizably in national polling, suggesting that the latter is likely to lose the popular vote in today’s election. But the US presidency is decided by the electoral college, not the popular vote, and on this basis, Biden’s lead is considerably smaller,” said macro research fund BCA Research in a note.

They said odds favoured an electoral outcome that points to increased fiscal spending. This continued to weigh on US Treasuries with the 10-year yield climbing a further 2 basis points to 0.87%. The yield has climbed 10 basis points in the past 5 trading sessions.

“But investors should recognize that a temporary post-election selloff in the equity market may occur – especially if a disputed vote result in a state affecting the electoral college winner enters the court system,” warned BCA Research analysts.

The US dollar weakened 0.5% against a basket of currencies to 93.66 while gold edged up 0.2% to $1,898 per ounce.

Also on Asia Times Financial

Asia Stocks

  • Japan’s Nikkei 225 index added 1.39%
  • Australia’s S&P ASX 200 surged 1.93% 
  • Hong Kong’s Hang Seng index jumped 1.96%
  • China’s CSI300 added 1.20%
  • The MSCI Asia Pacific index climbed 0.97%.

Stock of the day

Carmaker Geely Auto rose as much as 7.8% after a report it would achieve high-level PV autonomous driving on highways in 2021. It had climbed on Monday after UBS raised its target price. In two days, the share prices has climbed 22.5% and on Tuesday was the second highest traded share by volume on HKEX.  

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