U.S. stocks rose as Wall Street awaited both midterm elections that could end President Biden’s blue wave and a key inflation report. Tuesday’s US midterm elections could be market-moving if we see a Democratic surprise or if Republicans dominate the polls, but most traders are zeroing in on Thursday’s inflation report. ?
It’s still about inflation, and while this report may not be as hot as the last few, it should still show that rents and the core services sector of the economy remain warm. Inflation may not fall as quickly as some Fed members expect, and that could support the idea that interest rates will stay higher for longer.,
All eyes on the midterms
The Democratic deadlock in Congress is likely coming to an end. A divided government means we won’t see a big fiscal stimulus response next year when the economy is in recession. It may take some time for the official results to come in, but we should have a good picture on election night. Republicans need just five seats to take back that House, and most polls suggest that shouldn’t be difficult.,
The Senate is where it gets interesting. A close election in Georgia could end up triggering a runoff, while Nevada’s election is seen as a toss-up. Democrats are trying to defend Senate seats in Arizona and New Hampshire, while Republicans want to keep their seat in Pennsylvania.
The reason investors are so fixated on this week’s inflation data rather than the midterm elections is that it seems very likely that the Republicans will win one of the chambers this week. Even if Republicans win both the House and the Senate, the bullish reaction to risky assets may be short-lived. A Republican survey this week will confirm that it will see no major fiscal response from the Biden administration as the economy slips into recession. What will also weigh on the markets is that a Republican sweep increases the chances that next year’s debt ceiling talks could turn ugly very quickly.
Crypto
Bitcoin failed to push higher as risk appetite quickly waned this morning. It seems that bitcoin is still set to be a risky asset, and that means it may struggle to do anything until we get past both the midterm elections and the inflation report. Bitcoin should still find a home above the $20,000 level after the midterms as long as we don’t get a Democratic surprise. A Republican sweep could support a push above the $21,000 level for bitcoin, but it may not last until the latest inflation data. ?
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With more than 20 years of trading experience, Ed Moya is a senior market analyst at OANDA, producing up-to-date intermarket analysis, coverage of geopolitical events, central bank policy and market reactions to corporate news. His particular expertise lies across a wide range of asset classes, including currencies, commodities, fixed income, equities and cryptocurrencies. During his career, Ed has worked with some of the leading forex brokers, research teams and news departments on Wall Street, including Global Forex Trading, FX Solutions and Trading Advantage. Most recently, he worked with TradeTheNews.com, where he provided market analysis on financial data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks, including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most respected global news outlets, including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
