We review October’s market moves and its key drivers. With the XJO representing the top 200 ASX-listed stocks and forming the basis for many passive ETFs, we delve into the movements within this index. Additionally, as the XJO is the most actively traded options series, we examine market positioning as we head into November.
Key Drivers
· Global Economic Concerns: The outcome of the US election created market uncertainty, with some investors positioning for a Trump win. This is likely to continue driving market volatility until a clear winner emerges. Unrest in the Middle East has also contributed to oil price volatility amid the “on-again, off-again” ceasefire talks.
· Interest Rates: Higher yields on US Treasury bonds have pressured equities, impacting interest rate-sensitive sectors in Australia. Rising yields in both the US and Australia signal that higher interest rates may persist for an extended period.
· China’s Economic Measures: Generally viewed as positive for the Australian economy and major miners; however, the announcements so far have lacked detail, resulting in volatility among key exporters.
· Gold: Gold continued to break records amid Middle Eastern uncertainty and as a hedge against inflation.
Overall Market Moves
The Australian market (XJO) reached an all-time high during the month but closed 0.6% down. The Australian market outperformed other developed countries, with the Dow (US) down 1.3% and the Stoxx (Europe) down 3.3%. The only country to finish the month in positive territory was Japan, up 1.1%
The XJO chart shows the index closed the month moving down to its 50 day moving average. We will be watching through November to see if key support levels of 8120 and 7920 hold before the 200 day moving average at around the 7850 mark.
Moves in the XJO
Although the XJO’s decline for the month was less than a percent, there were significant movements within the top 200 stocks that make up the index. CBA contributed 34 points to the XJO, while BHP took 50 points. WTC, impacted by the departure of its CEO, also subtracted a notable 19 points for the month.
Table 1. Key index points contributors to the XJO
Sector Moves
At a sector level, financials (banks) had the best month as they headed into their reporting season in early November. Utilities had the worst month, with the rising bond market potentially impacting their debt profiles. Consumer staples also performed poorly, mainly due to negative sentiment and the number of government inquiries that could affect their business models.
Figure 2. Sector moves for the month of October.
Top Company Moves
Worst Company Moves
Options Moves
At the end of the month, the XJO continues to have the largest open interest with a high net number of puts and net sold calls likely to indicate that the options market is more positioned for a downside move.
BHP has a high number of both sold call and sold puts. Without a significant weighting either way it could mean the market sees a high amount of directional uncertainty for BHP.
FMG has a very high number of sold Puts compared to calls. This could indicate two things:
- Income traders believe the stock is oversold and it will move high and selling puts may be a good income trade.
- Investors are happy to buy FMG around these prices and are comfortable to sell puts for as a way of entering a little cheaper.
WDS also had a higher number of sold puts compared to calls, indicating that traders are more skewed to the upside.
CBA is a standout in that it has net high number of bought puts albeit a low number. This could indicate that investors are buying puts as a risk management mechanism to protect against a fall
Table 2. Option position summary of the five largest traded options series at the end of October (Source: ASX)
Popular trades for the month:
Selling BHP Calls
With BHP nearing $46 in the middle of the month, clients took the opportunity to sell the November expiring $47.01 call options as an income trade. They collected 40cents per share and with the stock pulling back the positions is looking very good as an income trade.
Moves Ahead
The key event for the month ahead will be the result of the US election and how markets respond. Both candidates are unlikely to cut spending; however, Trump’s tariff regime could have flow-on impacts on the Australian market.
We will also be watching any indicators that have the potential to influence the Reserve Banks in Australia and the US, such as the CPI, jobs data, and PMI.
Finally, the big banks will provide updates, which will be closely watched given their weight on the index and the reliance on their dividends by many investors. Margins will be in the spotlight.
Further Information
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DISCLAIMER: This Market update has been prepared by the Trading Desk and is not intended to be a research report. We believe this information is correct at the time of its compilation however no warranty is made as to its accuracy, reliability, or completeness. We cannot guarantee the performance or return on investments and those acting on this information do so at their own risk. The information is of a general nature, for the recipient’s information only and has been prepared without considering any particular individual’s investment objectives, financial situation or particular needs (“relevant circumstances”). Before acting on this information, you should carefully consider the appropriateness of it having regard to your own relevant circumstances and if you require advice regarding any aspect of the information and statements of opinion set out in this document, particularly as to whether you should base an investment decision upon it, please contact your financial adviser
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