Morning news: Midterms wake and new cryptowobble
A look at the day ahead in US and global markets from Mike Dolan.
Tuesday’s mid-term elections in the United States kept world markets in suspense, and investors now assume that politics will emerge as the winner.
Although it may be days before all the US election results are known, global stock markets appear priced for a Republican celebration of both the House and Senate. Major exchanges in Asia and Europe as well as US stock futures were steady as in-person voting was set to begin.
The positive market bias on the most likely outcome assumes that the resulting freeze on President Joe Biden’s legislative agenda for the next two years will remove fiscal spending risks to the inflation picture at the margin — allowing the Federal Reserve to end credit tightening sometime next year.
By definition, a surprise Democrat showing could lead to a reversal of any of these bets and elicit the biggest price reaction. In addition, the tension surrounding the election process and former President Donald Trump’s expected appearance next week to run for the White House in 2024 will be closely watched.
While stocks remained calm, US bond yields and the dollar crept higher, with 10-year Treasury yields moving to their highest in a couple of weeks.
With a critical US inflation reading on Thursday, there was some focus on San Francisco Fed surveys that showed credit across the economy is tighter than the Fed’s policy rate suggests, and financial conditions in September were more reflective of a 5.25% policy rate than today 3.75%-4%.
While the major markets were mostly treading water, there was another tremor in the cryptocurrency world. The FTX token , the original token of crypto exchange FTX, plunged 20% amid a flurry of reports and speculation that dragged down the entire crypto complex and saw it down 5%.
FTX has come under pressure after the head of rival exchange Binance said on Sunday that his firm would liquidate its holdings of the FTX token due to unspecified “recent revelations”. FTX founder Sam Bankman-Fried said the exchange was “fine” and that the concerns were “false rumours”. The firm had no immediate comment when contacted by Reuters on Tuesday.
Chinese stocks also underperformed broader markets as speculation in the past week about possible easing of strict COVID-19 curbs as soon as next month appeared to have subsided again. New cases of the coronavirus surged in global manufacturing hub Guangzhou and other Chinese cities, and nationwide infections hit their highest level since May 1.
In Europe, the European Central Bank’s hawks were out in force and talked up further interest rate increases. ECB officials also said on Monday they were closely scrutinizing banks’ payout plans in the eurozone as the outlook for the bloc’s economy worsens and markets falter.
Shares in Persimmon ( PSN.L ), Britain’s second-biggest housebuilder, fell more than 7% after it warned about profit margins in 2023 as UK house prices fell and the rate of sales fell.
Japan said its foreign reserves fell for a third straight month to $1.19 trillion, with the $43.5 billion decline marking the second sharpest month-on-month on record as the Bank of Japan sold dollars to prop up the weakened yen.
Key developments that could give direction to US markets later on Tuesday:
* US midterm elections for Congress
* US Treasury auctions 3-year bonds
* Earnings for US companies: News Corp, Occidental Petroleum etc
By Mike Dolan, editing by Gareth Jones [email protected]. Twitter: @reutersMikeD
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