MARKETS SPECTATOR: Rate odds lengthen

With the US election race growing tighter, and odds for a Cup day rate cut drifting, market uncertainty grows.

Despite a much stronger-than-expected US jobs report, US markets opened high and fell all session on Friday as participants used the strength to sell into as nervousness ahead of tomorrow’s election drove people towards the exit door.

The technology-heavy NASDAQ was the weakest performer, losing 1.26 per cent while the Dow Jones Industrial Average and S&P 500 fell 1.05 and 0.94 per cent respectively.

Friday’s session was a classic case of uncertainty dominating investor’s minds. There is nothing markets dislike more than uncertainty, and with tomorrow’s election neck and neck between President Obama and Mitt Romney, there is a very good chance that counting will go on for days until a winner is determined.

In fact, if this is the case and it takes days to weeks to determine the winner, it could be the worst case scenario for equity markets. Markets don’t want further uncertainty; instead they want to see the next president get stuck into sorting out the ‘fiscal cliff’. If this is delayed because the vote is so tight then we could see some interesting price action over the period.

So looking towards today’s session the market looks likely to open slightly lower, with S&P/ASX 200 futures pointing towards the 4438 level or 0.1 per cent weaker. With many people off due to the long weekend in Victoria, tomorrow’s interest rate decision from the RBA and the uncertainty ahead of the US election, there’s unlikely to be a whole lot of conviction to today’s trade, with participants willing to just sit on the sidelines and wait for some of the uncertainty to abate.

Tomorrow’s rate decision is likely to be another line ball call. Four weeks ago markets were pricing it in as a foregone conclusion, however that’s seems to have drifted over the last few weeks. The price action towards the end of last week that saw the domestic market fall for no real apparent reason looked like the market pricing out a rate cut. It’s a hard one to call but my gut instinct has me leaning towards a cut, but only just.

However, before we get to tomorrow’s rates decision there is some important economic data due out today. The trade balance figures, retail sales numbers and ANZ job advertisements are all due for release at 11.30am. As it stands the market is expecting a deficit of $1.5 billion and retail sales growth of 0.6 per cent.

So all in all, it’s going to be a very interesting start to a pivotal week.

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