Global markets were mixed on Friday (S&P 500 Index -0.3%) as US markets were flat but still experienced their best week since April – up +7.3%. The market surge since the US election is the best US election week since Roosevelt beat Hoover in 1932. The US dollar also continues to weaken and is at 2-year lows against a broad basket of currencies.
Biden was announced as the winner of the US election by all the major media outlets yesterday morning after winning the key swing state of Pennsylvania. The final votes are still being counted in a few states, but Biden now has an unassailable lead in the electoral college. Trump has predictably refused to accept the result and his campaign have signalled that they will start legal challenges, with vote recounts likely in several states where Biden’s margin of victory is less than 1%. Regardless of the outcome, a new President must be sworn in on inauguration day (20th January).
Markets are rallying on the view that there will be a Democrat house and Republican senate which will mean more mainstream policy, and S&P 500 data since 1980 supports the view that a divided government actually sees higher average stock market returns than a unified one.
Aside from the election, US economic data showed that American employers added 638,000 jobs in October, more than the 570,000 forecast, and the unemployment rate dropped from 7.7% in September to 6.9% in October. While the labour market has recovered more quickly than expected to this point, the risk remains that the resurgence in COVID-19 curtails employment growth in the coming months.
Macquarie shares were higher on Friday (+2.3%) as its first-half profit fell by less than expected while its investment banking arm reported its first ever loss.
The company said interim profit fell by nearly one third to $985 million because of delayed deals and a rise in loan writedowns, which caused the first ever loss for its investment banking unit. However, the result beat versus expectations on better revenues. Management again declined to provide guidance noting uncertain market conditions.
We have been BUY rated on MQG for some time and this was a pleasing result. We think Macquarie should be well placed once the economy recovers with the current share price now at more ‘fair value”. We will release our full update in our weekly report but maintain our BUY rating with a medium-term investment horizon given MQG’s diversified top quality assets and infrastructure investment in long term themes we like such as data and renewable energy.
Australia & New Zealand Market Movers
The Australian market capped off the week with another gain on Friday (ASX 200 Index +0.8%) to climb +4.4% for the week. The Reserve Bank of Australia reiterated its willingness to expand its asset purchasing programme.
In stock news, News Corp increased as investors liked its 21% increase in first earnings and Tabcorp disputed claims of a private equity takeover offer. A fourth Coca-Cola Amatil shareholder has expressed its view the takeover bid from CCEP materially undervalues the business. The scheme of arrangement for a takeover requires 75% approval from independent shareholders, so the deal could fall over if not backed by key shareholder.
Australian media is reporting the Australian government is expecting an imminent announcement from NZ on two-way traffic across the Tasman. However, a spokeswoman from NZ's Ministry of Foreign Affairs and Trade was less bullish saying only that New Zealand remained committed to introducing two-way trips as soon as it was safe.
The New Zealand market was higher on Friday (NZX 50 Index +0.7%) the third day of a post-US election global gains. Synlait Milk (+7.6%) jumped as it announced a new client and reached a settlement over a breach of covenants at its Pokeno plant. Investors appear pleased the dispute is no longer hanging over the company, even if the settlement was not material.
In stock news, Spark reiterated earnings and dividend guidance ranges at its AGM on Friday – with an attractive dividend forecast of between 23 cents and 25 cents per shares.
3 Things Markets Will be Watching this Week
- An early focus naturally will be on the strength of Trump’s lawsuits – and whether these threaten to rekindle election uncertainty.
- Locally, the week ahead is dominated by the RBNZ’s OCR review on Wednesday.
- Second wave COVID-19 news is back at the top of headlines with social distancing measures re-introduced across Europe.