Optimism for Australian stocks ahead of US election

Australia's stock market could be lifted by a win by Democratic hopeful Barack Obama in the US election and an expected cut in domestic interest rates, traders said on Friday. For the week ending October 31, the benchmark S&P/ASX200 rose 148.6 points, or 3.8 percent, to 4,018.0 despite being sold down early in the week on fears the global crisis could be worse than expected.
The market improved mid-week on the back of a rebound in global bourses with materials and energy the best performing sectors. Dealers said the overriding factors affecting the Australian market in the week ahead would be the November 4 US election and the central Reserve Bank of Australia's (RBA) decision on interest rates on the same day.
"I think the US election will be very interesting," CMC Markets senior dealer Dominic Vaughan told AFP. "(If) Obama gets in... there is talk that it could be a bit of a ray of sunshine and that we may get a bounce in the US equity market - which basically means a corrective bounce in global equity markets."
Vaughan said a victory by Republican contender John McCain would be seen as a continuation of the administration of President George W. Bush and could be a drag on the market.
A cut in Australian interest rates, widely expected to be a 50 basis point drop which would lower the official cash rate to 5.50 percent, could also be a positive for the equity market. "When they start cutting it means that people with investments will have to look at some sort of growth investments; if they are looking for some sort of yield they are more likely to move back into the equity market," Vaughan said.
He said while the market was stable for now, there was "talk that this is again still a correction within the bear market." "So again... what we really need is a step up in confidence," he said. Shane Oliver, head of investment and chief economist at AMP Capital Investors, said the global slide towards recession would ensure volatility in stock markets in the coming months. "It's still too early to say for sure that we have hit bottom," he said, adding that Australian shares have endured their worst month since 1987. "Just as share markets peaked before the world went into recession they will also trough before the economic news turns good again," Oliver said.