Market Close Oct 05

Stocks climb as Trump recovery signs dim volatility woes

President’s health is seen to increase the chance of new stimulus plan; Oil recovers some of its deep losses; Europe opens on firmer footing, but China closed for Golden Week break

Stocks climb as Trump recovery signs dim volatility woes
Trump makes a short drive-by visit to thank his supporters in a motorcade from the hospital in Maryland where he’s being treated for Covid-19. Photo: AFP 

(ATF) Markets rose across Asia and at the opening of trading in Europe as reports signalling that President Donald Trump’s health is improving after contracting coronavirus raised investor hopes that another bout of volatility might be avoided.

Wall Street futures also climbed as expectations gathered for a new stimulus deal in the US. Oil rose 2%, recovering some of its precipitous losses last week as fears of weakening demand lessened.  

Although Trump was diagnosed with Covid-19 on Friday, sending markets lower, his doctors said on Sunday his condition was improving and later he was seen in a motorcade waving to supporters on a short drive from the hospital where he is being treated. 

While his hospitalisation isn’t expected to materially change his poor standing in polls before the November 3 presidential election, the prospect of Trump being incapacitated posed concern over the chain of succession.    

TRUMP ILLNESS: Trump in army hospital after taking drug cocktail for Covid 

“Financial markets dislike uncertainty, so Trump’s health situation is likely to cause some volatility in the next 14 days and perhaps beyond. In the case that the markets enter a deep period of volatility or a bear market, the odds of a fiscal stimulus will rise dramatically,” said Paresh Upadhyaya, director of currency strategy and US portfolio manager at Amundi. 

“This should help settle markets. In addition, we would anticipate the Fed to step in with more asset purchases and a more formalised forward guidance to help anchor long-term interest rates should it need it.”

Analysts said the episode could help jolt congressional leaders to up their efforts for a second economic rescue package, with House Speaker Nancy Pelosi saying: "This kind of changes the dynamic."

Trump urged lawmakers to reach a deal in a tweet from hospital.

Deal is ‘closer'

Pelosi and Treasury Secretary Steven Mnuchin have held a series of talks aimed at matching up their spending plans, with the Democrats' $2.2 trillion proposal around $600 billion more than what Republicans are willing to stump up.

Even Senate Majority Leader Mitch McConnell, who has often been hostile to most Democrat requests, offered a hopeful tone on Friday, saying: "I think we're closer to getting an outcome.”

The need for a fresh package was highlighted on Friday by data showing the US economy created fewer jobs than expected in September, showing that the recovery enjoyed through summer was stuttering.

"The dramatic turn of events may be a catalyst for a stimulus agreement – or it may not; we wait for bills to be put to Congress and votes to be taken," wrote Julian Emanuel of BTIG.

"With key economic data extending its run of disappointments versus expectations and high-profile corporate layoffs, additional aid would seem imperative."

Hong Kong, which reopened after a four-day weekend, rallied more than 1%, along with Tokyo, Mumbai and Seoul, while Sydney piled on more than 2% and Singapore 0.5%.

London, Paris and Frankfurt all gained in early trade.

Observers said markets are largely pricing in a Joe Biden victory over Trump next month and a clean sweep for Democrats in House and Senate polls, despite expectations of higher taxes and regulations.

But Axi strategist Stephen Innes warned of more bumps in the road ahead. 

"With just weeks ahead of the US election, the only certainty is the uncertainty of what lies ahead,” Innes said. ”In the near-term, the president's health situation may increase the likelihood of a contested result and all the adverse knock-on effects in times of uncertainty and heightened volatility after polling day," he added.

The more positive outlook for Trump's health lifted riskier assets, with higher-yielding currencies up against the dollar, while key safe havens yen and gold retreated.

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Asian Markets

# Japan’s Nikkei 225 climbed 1.2%

# Hong Kong’s Hang Seng Index advanced 1.3%

# China’s CS300 Composite was closed for holidays

# MSCI added 0.4% 

# And the UK’s FTSE 100 was 0.7% higher in early trade

  • With Additional reporting from AFP

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