US stock-index futures steadied as investors awaited Tuesday’s midterm elections and Thursday’s inflation print for cues on a nascent rally.
(Bloomberg) — US stock-index futures steadied as investors awaited Tuesday’s midterm elections and Thursday’s inflation print for cues on a nascent rally.
Contracts on the S&P 500 and Nasdaq 100 indexes erased losses, after US stocks posted a second-day rally on Monday. A selloff in Treasuries halted, while gold continued to trade lower. The dollar rebounded after a two-day slide. Take-Two Interactive Software Inc. tumbled in New York premarket trading after reducing its forecast for net bookings.
Bulls have charged back into equity markets over the past two days amid expectations the midterm results could herald a near-term rally. While polls suggest Republicans could make gains, thereby placing a check on Democratic policies, investors are busy examining multiple scenarios. The best outcome for Treasuries could be a Republican control of both the House of Representatives and Senate, while the dollar could find support should Democrats keep both chambers.
“The US debt burden could stop the Democrats from putting in place many economic reforms that they would’ve otherwise, if Republicans are sufficiently crowded to block them moving forward,” Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, wrote in a note. “Hence, slowing debt under GOP could slow growth.”
Treasuries were little changed, with the 10-year yield steady at 4.21%. Tuesday’s two-way moves underscored the fragile sentiment in markets where the Federal Reserve’s monetary tightening remains the biggest headwind. Thursday’s consumer-price-index data may offer the next cue for traders even as money markets are raising their peak-rate wagers.
The inflation reading is coming after the core consumer price index rose more than forecast to a 40-year high in September. Even if prices begin to moderate, the CPI is far above the Fed’s comfort zone.
“Inflation is going up. It may be coming down periodically. But it’s going up,” Richard Harris, chief executive of Port Shelter Investment Management, said on Bloomberg Television. “The market is kind of uncertain — it’s hoping for the best but really should be preparing for the worst.”
Meanwhile, swaps markets are leaning toward a 50 basis-point Fed rate increase in December, after a fourth consecutive jumbo hike to a target range of 3.75% to 4% at last week’s meeting. Rates are expected to peak slightly above 5% around mid-2023.
JPMorgan Chase & Co.’s Marko Kolanovic warned of the risk to stocks from ongoing Fed hawkishness, and Morgan Stanley’s Mike Wilson said companies will need to aggressively shrink expenses, including through layoffs, before he becomes more optimistic on US equities.
Already, signs of stress in US corporate performance are becoming visible. Of the 441 S&P 500 companies that have reported quarterly results, almost a quarter have missed profit forecasts.
Take-Two tumbled 17% in premarket trading after the company cut its forecast in the wake of an industry-wide spending slowdown. SolarEdge Technologies Inc. rose after posting strong quarterly results. NVidia Corp. gained as it began producing a processor for China.
Europe’s Stoxx 600 was little changed, after a weak open. Chinese equities halted a rally as traders considered a jump in virus infections and official comments defending Covid Zero.
China’s renewed commitment to keep strict pandemic controls sparked a decline in oil. West Texas Intermediate futures dropped below $91 a barrel, after easing almost 1% on Monday.
Key events this week:
- Euro-zone retail sales, Tuesday
- US midterm elections, Tuesday
- EIA oil inventory report, Wednesday
- China aggregate financing, PPI, CPI, money supply, new yuan loans, Wednesday
- US wholesale inventories, MBA mortgage applications, Wednesday
- Fed officials John Williams, Tom Barkin speak at events, Wednesday
- US CPI, US initial jobless claims, Thursday
- Fed officials Lorie Logan, Esther George, Loretta Mester speak at events, Thursday
- US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 0.1% as of 9:27 a.m. London time
- Futures on the S&P 500 were little changed
- Futures on the Nasdaq 100 rose 0.2%
- Futures on the Dow Jones Industrial Average were little changed
- The MSCI Asia Pacific Index rose 0.7%
- The MSCI Emerging Markets Index rose 0.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro fell 0.3% to $0.9989
- The Japanese yen rose 0.2% to 146.37 per dollar
- The offshore yuan fell 0.5% to 7.2679 per dollar
- The British pound fell 0.4% to $1.1472
Cryptocurrencies
- Bitcoin fell 4.4% to $19,765.5
- Ether fell 5.4% to $1,490.24
Bonds
- The yield on 10-year Treasuries was little changed at 4.21%
- Germany’s 10-year yield advanced one basis point to 2.35%
- Britain’s 10-year yield advanced three basis points to 3.67%
Commodities
- Brent crude fell 0.7% to $97.20 a barrel
- Spot gold fell 0.4% to $1,668.99 an ounce
–With assistance from Jan-Patrick Barnert, Haidi Lun and Brett Miller.
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