Equity markets in the US gained momentum on Tuesday after the mid-term elections showed signs of gridlock while also monitoring a selloff in cryptocurrencies.
United States
The S&P 500 closed higher on Tuesday after trading in a volatile session whereby a sell-off in cryptocurrencies weighed on sentiment. As of 3:40pm in New York the S&P500 rose 0.66% with the Dow Jones 1.02% higher along with the Nasdaq Composite 0.49%. Head of portfolio management at Horizon Investments, Zachary Hill commented, “Investors are buying ahead of what they think will be a firm Republican sweep of both Houses”. Treasury notes are seen as strengthening if Republicans take the House of Representatives and Senate, meaning less fiscal spending while the greenback could gain support if Democrats retain both their chambers. The yield on the 10-year US treasury note fell 7.5 basis points to 4.14% while the VIX rose 3.20 % to 25.13. Shawn Cruz, head of trading strategy at TD Ameritrade added his comments of the impact of the mid-terms on the markets, “The more and more you just get polls or even some slight acknowledgments from places that the Republicans are probably going to take up at least one chamber of Congress, I think the market is actually seeing that as a good outcome.”
Economic data released yesterday showed credit extended to consumers had dropped to $24.98 billion in September, more than the expected decline to $30 billion. In focus on Thursday is the release of inflation data for October expected to show headline and core prices eased modestly on a year-on-year basis to 6.5% and 7.9% respectively. Signs of moderating inflation would add weight to calls for the Federal Reserve to step down the size of rate increases, although policy is expected to remain tight with inflation uncomfortably above target. In corporate news, the world’s largest cryptocurrency trading platform Binance announced the company is planning on acquiring rival exchange FTX amid speculation of a liquidity crunch that weighed on cryptocurrencies with Bitcoin slumping -11.76% to US$18,250.
Europe
The Euro Stoxx 600 was up by +0.75%, as all sectors closed higher except energy which dropped -2.13%. Information technology jumped +3.3%, followed by industrials and materials which were both up by +1.39% and +1.32% respectively. Out of the 600 companies listed on the index, 60% have now announced better-than-expected quarterly earnings. The CAC climbed +0.39%, the DAX jumped +1.15%, while the FTSE rose +0.86%. Meanwhile, ECB policymakers reiterated the bank would continue to hike interest rates in light of rampant inflation caused by the Russian-Ukraine conflict.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX is expected to open higher this morning, as ASX futures were up 39 points or 0.55% to 6,994. The ASX 200 closed +0.36% higher on Tuesday, with utilities, consumer staples and financials rising by +1.38%, +1.30% and +1.02% respectively. Mineral Resources made the largest gains, rising by +4.95% after Macquarie upgraded its lithium price forecasts, while Pilbara Minerals, Core Lithium and Mineral Resources all rose more than 3.8%. The biggest laggard was US building materials James Hardie Industries, which plummeted -13.72% after the company CEO warned of future declines in the US home construction. Lotto and scratchcard merchant The Lottery Corporation rose +9% after it announced a rise in revenue. Medibank declined by -1.8% on the back of additional estimated damages to be paid to customers due to a data breach. Sims Metals slumped -9.7% on the back of declining profit forecasts. Economic data revealed that consumer confidence declined from 83.7 in September to 78 in October, as per the Westpac Consumer Confidence Index, adding support to the RBA’s recent easing back in the pace of rate increases.
Commodities
Oil prices dropped with WTI and Brent Crude declining by -2.56% and -2.11% to $89.41 and $95.87 respectively. Spot gold was up by +2.31% to $1,714.66 driven by weakness in the USD which some speculate has reached a long-term top that would be supportive for the precious metal. Copper dropped -2.25% to $360, nickel slid by -1.82% to $23,292, while SGX Iron Ore edged up +0.27% to $86.18.
Economic Calendar:
- Australian Building Permits (SEP) 11:30
- Chinese Inflation Rate (OCT) 12:30
- US Fed Williams Speech 19:00
- US MBA Mortgage Applications 23:00
- Fed Barkin Speech 03:00
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
