The Overnight Report: Oops, Oh Well

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By Greg Peel

The Dow rose 133 points, or 1.0%, while the S&P gained 0.8% to 1428 as the Nasdaq dragged with only a 0.4% gain.

I'll let you in on a secret. Yesterday, when I put up an FNArena Alert on the website to announce no change from the RBA, I had actually prepared two announcements ? one for no change and one for a cut. Fortunately, I pressed the right button at 2.30pm, rather than accidentally pressing the wrong one. It's a typical publishing tactic, but the risk is always that someone does actually publish the wrong prepared version. Sure enough, this is what happened at the Cincinnati Enquirer last night, or mid-morning local time, on Election Day.

Cincinnati is in the critical swing state of Ohio, and an Enquirer "dummy" template showing Romney well ahead in early voting erroneously hit the wire. It was quickly taken down, but not before being picked up by other blogs and transmitted to the world as news. An excited Wall Street rallied on this news, and when the S&P 500 hit the 100-day moving average the technical models kicked in, thrusting all indices higher still.

The funny thing is though, when Wall Street eventually became aware it was all a mistake the indices did not turn tail and run. They drifted toward the close, but basically hung in there. This might seem like a bit of a head scratcher, but the truth is election days have in the past seen a rally on Wall Street. The theory is that the final arrival of polling day heralds the end of uncertainty and speculation, whoever may be the victor, and after the hardest fought and most heavily funded election campaign in US history, which arguably has been playing out for two years, election day must come as sheer, blessed relief.

It is thus unlikely, therefore, that an Obama victory will send Wall Street packing. The mood is "risk on" and the hope is for a resolution to the fiscal cliff. What would send Wall Street packing is a deadlocked result that may require legal intervention, a la 2000 when Al Gore won the popular vote, but George W manipulated an ultimate victory on electoral colleges in the Supreme Court ? a process that took weeks.

The "risk on" mood was also reflected in commodity price movements ? in a big way. In the case of commodities, however, as opposed to equities, sharp moves to the upside tend to suggest expectations of an Obama victory. Under Obama's social policies the Fed would need to maintain unlimited stimulus, the theory goes, while under Romney's more capitalist policies Fed support may well be wound back. And what's more, it is expected Ben Bernanke would take the opportunity to retire as Fed chairman were there a change in leadership.

Base metals all rose 1-2% last night, and spot iron ore is up US60c to US$121.10/t. Brent jumped US$2.96 to US$111.07/bbl and West Texas gained US$2.75 to US$88.40/bbl. Most notably, gold is up US$32.80 to US$1716.60/oz.

The US dollar index was not specifically to blame for surging commodity prices, falling only 0.2% to 80.60. It did fall sharply against the Aussie (which is not an index constituent) on the RBA's decision not to cut its cash rate, and the Aussie is thus up 0.7% to US$1.0438.

On the other hand, the Obama/Fed theory should provide for strength in US bonds. Yet last night the ten-year yield rose 6bps to 1.74%. So what's going on there?

Suffice to say, no one really knows. Everyone is hoping that by either late tonight local time, or when they awake tomorrow, America will have a confirmed president.

Meanwhile across the pond, Greeks are revolting. The country shut-down as once again workers took to the streets in protest about yet another belt-tightening exercise from the government, with parliament due to vote on the budget tonight. Markets don't move on such scenes anymore ? indeed these days they would only move if a camera caught a shot of a Greek actually putting in a decent day's work and paying tax ? besides which, last night an EU official suggested Greece was "on track" to qualify for its next bail-out tranche. More's the pity.

The SPI Overnight is up 13 points, or 0.3%.

Hopefully one of the two candidates will be conceding defeat during the Australian session today. Locally, the highlight will be a quarterly trading update from CommBank ((CBA)), thus wrapping up the bank result season.

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