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Budget as expected, Trump sends US markets into a spin, futures down

Budget as expected, Trump sends US markets into a spin, futures down
Although there weren’t any surprises of note in last night’s budget, today will be the litmus test in terms of gauging whether it was in line with investor expectations.
Oct 07, 2020 By Trevor Hoey

The S&P/ASX 200 index (XJO) added 20 points to close at 5962 points in a fairly lacklustre day on Tuesday.

 

The gold sector was the main mover with a proposed ‘’merger of equals’’ at the top end of town expected to create a new top 10 global gold mining group with a pathway to producing 2 million ounces of gold per annum.

 

The combination of Northern Star Resources (ASX: NST) and Saracen Mineral Holdings (ASX: SAR) would have a market capitalisation of more than $16 billion.

 

The proposed transaction triggered significant share price gains in other stocks that could be the subject of merger and acquisition activity. 

 

Aside from this action in the gold sector, it appeared that consternation surrounding the budget last evening resulted in many traders sitting on the sidelines to watch the day play out and the budget to beat all budgets unfold.

 

Although there weren’t any surprises of note in last night’s budget, today will be the litmus test in terms of gauging whether it was in line with investor expectations.

 

During the mining boom Treasurer Peter Costello delivered a number of cash splash budgets that spanned pension increases, tax cuts and one-off cash bonuses - even a have an extra baby ‘’for the country’’ appeal - why, because we could afford it.

 

By contrast, the extensive tax incentives, spending and stimulus packages in last night’s budget were delivered because the government couldn’t afford not to prop up the Australian economy even if it resulted in racking up a debt that will take more than a decade to pay off.

 

With generally negative leads from overseas, the ASX SPI200 futures index looks to be on the mark, down 17 points to 5932 points.

 

All of the major indices in the US were down between 1.3% and 1.6% with the NASDAQ hardest hit as it fell 178 points to close at 11,154 points.

 

Most of the losses occurred in the last hour of trading with the Dow plunging from 28,354 points to close at 27,772 points.

 

The sell-off was triggered by Trump calling an end to fiscal stimulus discussions until after the election, a decision that is unlikely to resonate with voters.

 

It was a different story in Europe where markets are remaining resilient despite heightening COVID concerns.

 

The FTSE 100 was up a nominal 0.1% to 5950 points, but mainland European markets performed much more strongly with the DAX leading the way as it increased 0.6% to 12,906 points.

 

The CAC 40 followed suit, rallying 0.5% to 4895 points.

 

On the commodities front, it is going to be an interesting day for our gold stocks after some strong gains yesterday.

 

The precious metal slumped more than US$30 per ounce last night to close below US$1890 per ounce.

 

The Brent Crude Oil Continuous Contract continued to rally after a strong day on Monday.

 

However, after hitting a high of US$42.84 per barrel late in the day it has faltered in after-hours trading, currently hovering in the vicinity of US$42 per barrel.

 

There was very little activity on the base metals front with copper and lead recording minor gains.

Budget news appeared to have a negative impact on the Australian dollar as it fell from about US$0.72 to US$0.71.

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Trevor Hoey Author: Trevor Hoey Oct 07, 2020

Former senior writer for AFR, Trevor Hoey provides incisive commentary on ASX developments, particularly focusing on the emerging companies market segment.

European markets slip on further Covid restrictions

The FTSE remains down following the UK government announcing further stricter regional lockdown measures, this time in the Greater Manchester.

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