Stocks skid more than 1pc on US nerves

The local market has shed more than 1pc, as global political fears take hold.

Donald Trump’s poll numbers this week have rattled investors and clouded the outlook for US rate hikes. Picture: AAP.

The Australian sharemarket has tumbled to a fresh low, hampered by concerns around a potential Donald Trump election victory that are forcing global market volatility sharply higher.

At the close, the benchmark S&P/ASX 200 index had skidded 61.5 points, or 1.16 per cent, to 5,229, while the broader All Ordinaries index backtracked 64.2 points, or 1.19 per cent, to 5,311.

IG chief market strategist Chris Weston said a pick-up in Mr Trump’s poll numbers this week had rattled investors and clouded the outlook for US rate hikes given his testy relationship with the Federal Reserve.

“The market’s anxiety levels have moved up a gear,” Mr Weston said.

“This pick-up in volatility will probably be with markets until we understand the results of election, and if Trump wins, how harmonious his relationship with the Fed will be.

“It’s no surprise though to see the US dollar sold fairly aggressively as money moves out of the greenback and into Swiss franc and Japanese yen, on the lower chance of a Fed hike in December.”

While markets have been focused on the US Fed and subdued global inflation and growth, it is major political events that threaten to disrupt markets the most, with the uncertain US election coming on the heels of June’s shock Brexit vote.

“We are not quite at the point where we need to think about canned food and underground wood bunkers, but we are once again being schooled in understanding the dynamics politics plays on financial markets,” Mr Weston said.

“(That) is, despite all the thoughts about central bank policy changes, improving inflation trends and every changing economics, politics dominates markets above all else.”

Westpac economists and strategists David Goodman, Richard Franulovich and Sean Callow went further in warning a Trump victory could be more problematic for markets than the Brexit vote.

“We believe a Trump win has larger long-term global ramifications than Brexit,” they said.

“A Trump presidency would bring about the biggest changes in many decades in existing US arrangements on everything from taxation policy, to trade policy, social spending, immigration and geopolitics.”

NAB, too, is tipping the prospect of radical change to force volatility higher, although it expects the US dollar to strengthen regardless of the winner.

“If Trump wins the short term market response is likely to be risk-negative but with the USD seen as strengthening, as has occurred during prior periods of global market stress, even when the US has been at the epicentre,” the bank said in a note.

“This would be particularly negative for the risk-sensitive Australian dollar, alongside risks of Australia being caught in the crossfire of a China-US trade war.”

Investors looking for something to hang their hats on can look to research from IG that reveals markets have historically rallied after US elections, with an average 6.4 per cent rise in the Dow through the first six months of a new president.

Meanwhile, gold miners shone through the local session after the precious metal benefitted from a flight to safety.

Newcrest jumped 2.5 per cent to $23.29, while smaller rival Regis Resources shot up 7.1 per cent to $3.45.

“Gold stocks are coming into a bit of a purple patch and that is where I would be hiding if I were trading equities, at least until we can find some answers to many of the questions the market desperately needs answers to,” Mr Weston said.

“Many of these will of course only be partially answered on the afternoon of the November 9 (US election).”

The broader commodities space has largely retained momentum through the recent volatility, with key Australian export iron ore bounding to a new six-month peak in offshore deals and coal, zinc and copper all pressing forward.

Despite this the big-name miners didn’t fare nearly as well as their counterparts in the gold space, with Fortescue drooping 4.8 per cent to $5.22, BHP easing 1.1 per cent to $22.56 and Rio Tinto weakening 0.6 per cent to $53.90.

Energy stocks also struggled after crude prices weakened a further 1 per cent.

Santos slumped 4.3 per cent to $3.36, Origin Energy lost 2.4 per cent to $5.25 and Woodside yielded 1.1 per cent to $27.71.

“Traders are selling on the assumption that there is now no prospect of OPEC implementing an effective production ceiling in the near future,” CMC Markets chief market analyst Ric Spooner said.

In finance, the big four finished deep in the red, with ANZ off 1.3 per cent, Commonwealth Bank down 0.8 per cent and Westpac and NAB sliding 1.4 per cent.

Among blue chips, Telstra dipped 0.4 per cent to $4.90, while Qantas slid 1.3 per cent to $2.95.

Elsewhere, Harvey Norman gave back 0.8 per cent on a steady quarterly update, Surfstitch leapt 2.9 per cent amid takeover offers, CSR soared 8.6 per cent on a strong first-half result and Virgin Australia stumbled 4.2 per cent after reporting “subdued” first quarter demand.

Meanwhile, the Australian dollar weakened US0.2c through the local session to US76.3c, with traders shunning growth-oriented currencies.