Equity investors appear sanguine about the US midterm elections
Global stock markets mostly rose Monday, extending last week’s strong gains, while dollar dipped against key rivals ahead of this week’s US midterm elections.
Even China dousing speculation of a relaxation of its strict Covid policies failed to crush positive sentiment in the markets.
Wall Street stocks pushed higher the day before most US voters go to the polls, although early voting was underway in many states.
US voters decide every two years who gets the majority in both chambers of Congress. The outcome will decide whether US President Joe Biden, who was swept to power two years ago in one of the most fraught elections Washington has witnessed, will be able to get any new policies passed or if the opposition will be able to frustrate his agenda.
“A divided government can be good for the market,” noted Neil Wilson, analyst at Markets.com.
“A Republican clean sweep would likely take key Democrat legislation off the table — mainly positive for markets — whilst in the unlikely event that the Democrats retain both houses it could see them push on with fiscal stimulus, mainly negative since it might be inflationary.”
The positive sentiment carried over from last week.
On Friday, Wall Street equities ended a volatile session higher after US jobs data showed hiring remained resilient and wages continued to rise, though at a slower pace.
That raised hopes of a soft landing for the world’s biggest economy despite aggressive rate hikes by the US Federal Reserve aimed at taming inflation.
“The bullish reversal in the markets suggests investors are perhaps happy to see signs that the US economy is holding its own rather well in terms of employment,” said market analyst Fawad Razaqzada at City Index and FOREX.com.
Craig Erlam at the OANDA online trading platform said the US inflation report on Thursday will be the next major data point that investors will be looking at, but there will also be another one before the next Fed meeting.
“You have to think we need two good readings for the Fed to scale back its expectations and give markets the festive cheer they so clearly want,” said Erlam.
“Until then, more choppy and confused trade may be what we get,” he added.
Investors have been hoping that any signs that the US economy or inflation is slowing would prompt the Fed to scale back its interest rate hikes, but Fed chief Jerome Powell has indicated policymakers won’t let up until inflation comes down, even at the cost of a recession.
Global markets and oil prices were also buoyant last week on hopes Beijing may begin to roll back policies aimed at stamping out coronavirus within its borders.
But on Saturday, the Chinese government said it would “unswervingly” stick to the current plan involving harsh lockdowns and strict quarantine and testing regimens for even the smallest clusters of cases.
Despite the official stance, “there are still hopes in the market” that Beijing may relax Covid-19 curbs in the coming months, Iris Pang, chief economist for Greater China at ING Wholesale Banking, told AFP.
“Traders believe that the Chinese government cannot permanently hold these existing Covid measures, and therefore the only direction is… looser Covid measures,” she said.
Ongoing large-scale events, such as the China International Import Expo in Shanghai, are also seen by investors as “a kind of water-testing” by Beijing, to see if cases and deaths rise significantly, Pang added.
Hong Kong’s Hang Seng index bounded 2.7 percent higher.
– Key figures around 1530 GMT –
New York – Dow: UP 0.7 percent at 32,635.22 points
EURO STOXX 50: UP 0.6 percent at 3,708.80
London – FTSE 100: DOWN 0.5 percent at 7,299.99 (close)
Frankfurt – DAX: UP 0.6 percent at 13,533.52 (close)
Paris – CAC 40: FLAT at 6,416.61 (close)
Tokyo – Nikkei 225: UP 2.7 percent at 27,527.64 (close)
Hong Kong – Hang Seng Index: UP 2.9 percent at 16,595.91 (close)
Shanghai – Composite: UP 0.2 percent at 3,077.82 (close)
Euro/dollar: UP at $0.9999 from $0.9964 Friday
Pound/dollar: UP at $1.1467 from $1.1309
Dollar/yen: DOWN at 146.37 from 147.44 yen
Euro/pound: DOWN at 87.21 pence from 87.80 pence
West Texas Intermediate: UP 1.1 percent at $93.59 per barrel
Brent North Sea crude: UP 0.7 percent at $99.30 per barrel
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