‘Dump all risk’: Trump’s Covid diagnosis roils global markets

Investors wiped more than $26bn off the Australian sharemarket and pushed the dollar down sharply while shifting to safe-haven assets.

Investors wiped more than $26bn off the Australian sharemarket and pushed the dollar down sharply while shifting to safe-haven assets.

Investors wiped more than $26bn off the Australian sharemarket and pushed the dollar down sharply while shifting to safe-haven assets including government bonds, gold and Japanese yen as global financial markets were briefly rocked by news that US President Donald Trump had contracted the coronavirus.

After falling sharply on Wednesday after the first US presidential election debate reinforced expectations that Mr Trump would lose the November 3 election, Australia’s S&P/ASX 200 index rebounded on Thursday, only to drop 1.4 per cent to 5791.5 points on Friday.

A 2.9 per cent fall this week made it the worst week for the benchmark index since late April.

The losses came as S&P 500 ­futures dived as much as 2 per cent on the news of Mr Trump’s in­capacitation.

Early on Saturday, Wall Street closed lower following news of the President’s diagnosis and a weak US jobs report, although losses were limited by encouraging commentary about a US stimulus package.

The Dow Jones Industrial Average finished down 0.5 per cent, the S&P 500 dropped 1.0 per cent and tech-rich Nasdaq Composite Index tumbled 2.2 per cent. Earlier, European markets were mixed.

Australia’s SPI futures were up 64 points on Saturday morning, pointing to a rise on the ASX on Monday.

After confirming in a Fox News interview on Thursday night that he would start a two-week quarantine after one of his closest aides, Hope Hicks, had tested positive, Mr Trump later said via Twitter than he and wife Melania had also tested positive for COVID-19.

But analysts questioned whether Mr Trump’s illness and his plunging chances of winning the election would necessarily be as bad for shares as a closely contested election result.

While the dollar initially fell 0.8 per cent to US71.31c on the news, it subsequently rebounded to US71.65c. At 6.45am (AEST) on Saturday, the dollar was at US71.62. Copper futures turned up after initially falling more than 1 per cent, although WTI crude oil futures fell 4.3 per cent to $US37.05 a barrel.

“With futures selling off in the Asian time zone, the initial response of investors has been to sell first and ask questions later,” BetaShares chief economist David Bassanese said.

“On balance this perhaps makes it less likely Trump will win the presidency, which has tended to be viewed as negative for stocks due to the risk of increased corporate taxes under Biden.

“But the counter to this view is that Trump’s incapacitation may make the result on election night clearer — even if it’s in Biden’s favour — which reduces the chance of a drawn-out court ­challenge.

“The market reaction over the next few days remains uncertain and investors would be wise not to jump to immediate conclusions or react too strongly one way or ­another.”

Still, safe haven assets remained in demand after news of Mr Trump’s condition.

Spot gold rose as much as 0.6 per cent to $US1917.16 an ounce, while the Japanese yen rose as much as 0.6 per cent against the greenback and 1.1 per cent against the Aussie, making it the best-performing G10 currency on the day.

Money also flowed to bonds, with Australia’s benchmark 10-year yield falling six basis points to 0.83 per cent, as the US 10-year Treasury bond yield fell more than two basis points to 0.651 per cent.

In the Asia-Pacific, Japan’s Nikkei 225 fell 0.7 per cent, while markets in China, Hong Kong, South Korea, Taiwan and India were closed for public holidays.

European markets closed mixed, with London ending up 0.4 per cent, Frankfurt losing 0.3 per cent and Paris flat.

“Dump all risk, find the best safe haven, and re-evaluate later is the primary modus operandi,” said Stephen Innes, chief global markets strategist at online currency broker Axi.

“The risk-off reaction to Trump’s positive COVID-19 test feels like the last of the Biden pricing is getting done.

“The quarantine will mean he [Trump] misses three swing state rallies — with critical Florida among them. It also means the next debate will need to be shifted,” Mr Innes added.

While there was no certainty about when and where the US President contracted COVID-19, Hope Hicks flew with Mr Trump, Vice President Mike Pence and staff on Air Force One on Tuesday to the Cleveland rally and debate, and then on to a rally in Minnesota on Wednesday, before she quarantined on the plane on the way home, Bloomberg reported.

“There are plenty of pictures from Trump and others, including Vice President Pence, talking without masks,” Mr Innes said.

“With senior White House staff operating in a very tight bubble, the next stages will be the test results for everyone on the Ohio trip. I suspect there are emergency contingency meetings under way now which could lather the market with (fiscal) stimulus.”

The news came as negotiations between Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi on a much-needed extension of the Coronavirus Aid, Relief and Economic Security (CARES) act appeared to reach a stalemate despite recent hints that a $US1.5 trillion ($2.1 trillion) to $US2.2 trillion package including relief for airlines that are shedding jobs was imminent.

While recent US economic data has mostly been stronger than expected due to unprecedented fiscal and monetary policy stimulus since the coronavirus pandemic struck in February, Friday’s release of US non-farm payroll data for September loomed as a key test of the economy’s resilience to the lessening of fiscal support and resurgence of the coronavirus in recent weeks.

But Mr Trump’s COVID-19 diagnosis is now likely to dominate the outlook for global markets in the week ahead and potentially overshadow the non-farm payrolls report, according to NAB.

“The November 3 election is now just 35 days away and attention will be on whether the diagnosis impacts on the polls,” NAB economist Kaixin Owyong said. “Also with the potential to impact the polls is a scheduled vice-presidential debate between Pence and [Kamala] Harris on October 7.”