Morning message: Congress unwashed, crypto a mess

A look at the day ahead in US and global markets from Mike Dolan.

Current market predictions of a Republican clean sweep of the US Congress in Tuesday’s midterm elections appear far from early results, leaving investors pondering the implications for the 2024 race for the White House on top of the expected political grind.

Incumbent Democrats enjoyed a stronger-than-expected showing, with a chance to retain the Senate, limit expected losses in the House of Representatives and take key governor’s races. After losing a key seat in Pennsylvania, Republicans must now win two of three Senate races in Georgia, Arizona and Nevada to take control of the chamber.

After a volatile trading session on Wall St on Tuesday, dampened in part by the latest implosion in the cryptocurrency universe, US stock futures were in the red ahead of Wednesday’s open. Dollar and sovereign yields strengthened.

A likely legal impasse for the next couple of years had already been priced in — draining the dollar but building up stocks and bonds on the assumption that no major new fiscal spending would take the pressure off inflation and the Federal Reserve. But the resilience of the Democratic vote could now trigger a reassessment of the 2024 presidential election, not least as former President Donald Trump is expected to announce next week his plan to run again.

Regardless of the results of the polls, the problems in the crypto world deepened amid fears of widespread contagion and selling following the near collapse of a major exchange on Tuesday.

Cryptocurrencies swooned again on Wednesday a day after top exchange FTX buckled under a rush of withdrawals, forcing a bailout by bigger rival Binance.

The foundation of cryptocurrency Bitcoin, down almost 75% over the past 12 months, experienced a top-to-bottom swoon of 20% this week as a result – hitting a nearly two-year low on Tuesday before finding a footing just over $17,000. But after a brief overnight rally, it fell back 7% on Wednesday.

Perhaps partly related to the crypto shakeout, shares of Tesla ( TSLA.O ) fell as much as 5% on Tuesday after filings showed owner Elon Musk sold nearly $4 billion in Tesla stock before his Twitter takeover.

Walt Disney ( DIS.N ) shares fell 9% after hours on Tuesday after the entertainment giant missed earnings forecasts and widened losses amid a push for streaming video.

With world markets now anxiously awaiting US October inflation readings on Thursday, China said factory gate prices fell last month for the first time since December 2020, underscoring faltering domestic demand as strict COVID curbs and a property slump hammer the economy.

Millions in the southern manufacturing hub of Guangzhou will be required to take COVID-19 tests on Wednesday in a bid to contain the city’s worst outbreak. But while China’s broader stock indexes were in the red on Wednesday, shares of Chinese property developers jumped as regulators expanded a program supporting bond issuance in the troubled sector.

The yen held steady after Japan said its current account surplus fell in the first half of the 2022 fiscal year to an eight-year low, largely due to the soaring cost of imported goods in dollars.

Key developments that could give direction to US markets later on Wednesday:

* Remaining US midterm election results for congressional elections

* Richmond Federal Reserve President Thomas Barkin speaks

* US Treasury auctions 10-year notes

* Revenue for US companies: DR Horton, Wynn Resports, Roblox

* The finance ministers gather for the COP27 climate conference in Egypt

By Mike Dolan, editing by Robert Birsel [email protected]. Twitter: @reutersMikeD

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