Investors cautious ahead of US election

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…

How did the Australian sharemarket (ASX 200) perform ahead of the US presidential election?

The ASX 200 finished slightly higher as investors sat on their hands ahead of the US presidential election. The benchmark S&P/ASX 200 was up 10.7 points, or 0.23%, at 4,484.8, with quiet trading as many investors waited for the election outcome before making big moves.

Why were trading volumes low on the day and what were the turnover figures?

Trading volumes were low because many investors put decisions on hold ahead of the US election and reacted cautiously to the RBA cash rate decision. National turnover was about 1 billion securities worth roughly $2.5 billion.

What impact did the RBA's decision to keep the cash rate on hold have on the Aussie dollar?

The RBA keeping the cash rate on hold helped push the Australian dollar higher to its strongest level in almost six weeks. Late on Tuesday the Aussie was trading around US104.27 cents (up from US103.68 cents), at one point rising as high as US104.37 cents. Commonwealth Bank currency strategist Joseph Capurso said the decision boosted demand for the currency.

Could the US election outcome affect the Australian dollar and how?

Yes. According to Commonwealth Bank strategist Joseph Capurso, a clear victory for either President Barack Obama or challenger Mitt Romney — and stronger results in Congress for that party — would likely be positive for the Australian dollar. Conversely, an unclear or contested result could lift the US dollar and push the Aussie down.

Which sectors and major banks helped drive gains on the local market that day?

Gains were led by the financial and materials sectors. Major banks rose: Westpac was trading at $25.57, extending gains after reporting a lift in full‑year cash earnings. ANZ was around $25.25, Commonwealth Bank about $57.48 and NAB at $25.05.

How did major miners like Rio Tinto and BHP perform during the session?

Mining stocks were mixed: Rio Tinto rose to about $59.50, while BHP Billiton fell to around $34.81, reflecting divergent moves within the materials sector that day.

What were bond futures and implied yields indicating about short- and long-term rates?

December 10‑year bond futures were trading at 96.900, implying a yield of about 3.100% (down slightly from 96.920, 3.080%). The three‑year contract was at 97.340, implying a yield near 2.660% (down from 97.420, 2.580%). These small moves showed modest adjustments in market-implied yields after the RBA decision.

What is the market mindset for everyday investors around major political events like the US election?

Markets tend to become cautious ahead of big political events. As IG Markets analyst Stan Shamu noted, many investors prefer to wait and react to the election result rather than try to predict it. That often leads to flatter sessions, lower volumes and a preference for preserving capital until uncertainty clears.