Going higher on wait-and-see approach

THE sharemarket has finished higher after investors sat on their hands ahead of the US presidential election.

By InvestSMART · 7 Nov 2012

By InvestSMART ·
7 Nov 2012

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THE sharemarket has finished higher after investors sat on their hands ahead of the US presidential election.

The local market experienced quiet trading conditions as the Reserve Bank left the cash rate on hold and stayed out of the market to watch the Melbourne Cup.

At the close, the benchmark S&P/ASX 200 Index was up 10.7 points, or 0.23 per cent, at 4484.8.

IG Markets analyst Stan Shamu said investors around the world had put their investment decisions on hold until the outcome of the US presidential election was decided.

"It's a close call and investors would rather react than try to predict any outcome from the elections, which is why we're flat on the major markets," he said.

"We've seen a fairly flat session across the region."

Local investors believe they may have to wait until next year for another interest rate cut unless conditions deteriorate on a global scale.

Local stocks started in the red yesterday, but improved throughout the day on the back of a gains in the financial and materials sectors. Westpac was up 22? at $25.57, extending gains from Monday when the bank reported a lift in full-year cash earnings.

ANZ rose 9? to $25.25, CBA was up 8? at $57.48 and NAB advanced 21? to $25.05.

Mining heavyweight Rio Tinto posted a 62? gain to $59.50 while rival BHP Billiton fell 1? to $34.81.

Trading volumes were low, with national turnover at 1 billion securities worth $2.5 billion.

Meanwhile, the dollar rallied to its highest level in almost six weeks after the RBA decision to keep the cash rate on hold.

Late on Tuesday the dollar was trading at US104.27?, up from US103.68? on Monday, after rising as high as US104.37?.

Commonwealth Bank currency strategist Joseph Capurso said the RBA's decision boosted demand for the currency.

"The market was finely balanced ahead of the decision, so the Aussie rocketed higher," he said.

Mr Capurso said a clear victory by either President Barack Obama or Republican challenger Mitt Romney, along with wins in Congress for their respective parties, would be good news for the currency.

"If it's a pretty clear victory for one party or another then it will probably be good for the Aussie dollar," he said.

"But if it is not, then you might see the US dollar lift, pushing the Aussie down."

The December 10-year bond futures contract was trading at 96.900 (implying a yield of 3.100 per cent), down from 96.920 (3.080 per cent). The three-year contract was at 97.340 (2.660 per cent), down from 97.420 (2.580 per cent).

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Frequently Asked Questions about this Article…

Why did the ASX 200 finish higher despite quiet trading?

The S&P/ASX 200 closed higher by 10.7 points (0.23%) at 4484.8 as investors adopted a wait‑and‑see approach ahead of the US presidential election. Quiet trading, a pause from the RBA on the cash rate and gains in the financial and materials sectors helped lift the market.

How did the Reserve Bank of Australia (RBA) keeping the cash rate on hold affect markets and the Aussie dollar?

The RBA's decision to leave the cash rate unchanged triggered a rally in the Australian dollar and supported demand for local assets. Commonwealth Bank strategist Joseph Capurso said the hold boosted the currency, with the dollar trading around US104.27¢ after the decision.

What was investor behaviour around the US presidential election and how did it influence local markets?

Investors largely put new investment decisions on hold until the US election outcome, preferring to react rather than try to predict results. IG Markets analyst Stan Shamu noted this produced a fairly flat session across major markets and contributed to low trading activity locally.

How did major Australian banks perform in this trading session?

Major bank stocks improved: Westpac rose to $25.57, ANZ to $25.25, Commonwealth Bank (CBA) was at $57.48 and NAB advanced to $25.05. The gains followed positive results and full‑year cash earnings updates that supported bank sentiment.

What happened to big miners Rio Tinto and BHP Billiton during the session?

Mining stocks moved unevenly: Rio Tinto rose to $59.50 while BHP Billiton fell to $34.81, reflecting stock‑specific moves within the materials sector rather than a broad commodity surge.

What does the low trading volume mean for everyday investors?

National turnover was light — about 1 billion securities worth $2.5 billion — which indicates lower liquidity and potentially wider intraday price swings. For everyday investors, low volume can mean it’s harder to execute large trades at desired prices and market moves may be more volatile.

How did bond futures and implied yields move, and what does that mean for fixed‑income investors?

December 10‑year bond futures traded at 96.900 (implying a yield of 3.10%), slightly down from 96.920, while the three‑year contract was at 97.340 (2.66%), down from 97.420. Small moves in futures and yields suggest modest shifts in interest‑rate expectations after the RBA decision.

Could the US election result affect the Aussie dollar, and how should investors think about currency risk?

Yes — a clear victory for either US candidate and congressional outcomes could be positive for the Aussie dollar, according to Joseph Capurso. Conversely, an unclear result might lift the US dollar and push the AUD down, so investors should factor election‑driven currency volatility into international investments and hedging decisions.