Posted on 11/09/2022 9:31:51 AM PST by SeekAndFind
Futures and yields are flat, both recovering from a dip earlier in the session, as investors kept an eye on midterm election results ahead of key inflation data later in the week. To the disappointment of bulls, a Red Wave failed to emerge in Congress as voters delivered a mixed verdict in elections shaped by inflation and split around social issues, with Republicans headed toward control of the US House, but by smaller margins than forecast, while the Senate majority remains a toss-up.
In the House, official results have Republicans on 196 and Democrats on 168. Projections from the New York Times (seats either already won by a party or projected to win) put the Republicans on 219 and Democrats on 207 with 9 seats viewed as "tossups". In the Senate, official results have Republicans on 47 and Democrats on 48. Democrats won in PA (where a brain-damaged Fetterman managed to flip a critical seat which even liberal pollsters said was set to go to republican Challenger Dr. Oz ) and NH; GOP is leading in NV and WI; Democrats leading in AZ and GA. Three key battleground states which are yet to be called are Arizona, Nevada and Georgia. The Georgia seat could end up having to be decided via an election run-off which would be held on December 6th. As such, the outcome of the election might not be known for weeks.
“It is clear that any Republican majority is likely to be extremely narrow. From a market perspective, that would certainly be attractive,” said DWS Global Chief Investment Officer Bjoern Jesch. “On the one hand, this would remove corporate tax increases or other spending packages that would have threatened both houses if the Democrats marched through. On the other hand, the Republicans would probably be too divided to set their own strong accents in legislation.”
Back to markets, where Nasdaq 100 futures were down -0.5%, while S&P 500 futs slipped 0.4% at 7:30 am ET after fluctuating between gains and losses one day after stocks capped a three-day rally.
In premarket trading, News Corp. and Disney both tumbled at least 8% after posting disappointing results. A selloff in cryptocurrencies deepened, sending Bitcoin toward the biggest four-day slump since June. Oil slid on the now daily sluggish demand outlook from China. The dollar rose while yields were flat. Affirm Holdings shares tumbled 16% as analysts said the buy-now-pay-later firm’s guidance cut and ongoing credit deterioration overshadowed a solid quarter. Meta Platforms Inc. gained after confirming job cuts of about 13% and let more than 11,000 of employees go. Here are some of the biggest US movers today:
Investors had hoped for a Republican "Red Wave" in Congress, with the best outcome seen as GOP control of both the House of Representatives and Senate. Optimism for shares has been helped by a history of robust performance following midterm results. Stocks have tended to flourish during times when government is constrained and polls suggest Republicans could make gains, placing a check on Democratic policies. But voters - and the USPS - delivered a mixed verdict, with Republicans heading for control of the House by smaller margins than forecast and the race for Senate still wide open. The final outcome may not be known for days or even weeks if the results are as close as polls have suggested and if losers challenge results.
“The Republican aim of controlling both houses hangs by a thread,” Chris Beauchamp, the chief markets analyst at IG Group in London, wrote in a note. “A divided House might mean the partisan battles over spending and the debt ceiling are not quite as dramatic or vitriolic, but this is unlikely to brighten the policy outlook markedly. Instead, the focus will likely return to the Federal Reserve and the US economy.”
That left Thursday’s inflation report the next catalyst for markets. Economists are expecting the figures to show consumer prices cooled slightly compared with the previous month. The data could provide crucial clues on how the Federal Reserve is likely to proceed with tightening monetary policy.
“Tension is high and investors won’t want to be burnt by jumping the wrong way ahead of that inflation data, because in the past expectation has proved a little off the mark,” said Danni Hewson, a financial analyst at AJ Bell.
In Europe, the equity benchmark fell for the first time in four days, dragged by tech, real estate, travel- and automotive-industry shares. Euro Stoxx 50 falls 0.7%. IBEX is flat but outperforms peers, DAX lags, dropping 0.8%. Here are some of the biggest European movers today:
Earlier in the session, Asian shares were little changed after three straight gains of more than 1%, as a rally in tech stocks offset losses in Chinese shares and investor worries about US midterm election results. The MSCI Asia Pacific Index was up 0.01% as of 6:04 p.m. in Singapore, with chipmakers TSMC and Samsung Electronics among the biggest boosters, while Chinese internet names fell amid concerns over Singles Day sales. With Republicans headed toward control over the US House of Representatives -- albeit by a smaller margin than forecast --some investors say it portends difficulty in passing legislation during a trying economic period, while others see political gridlock as preserving status quo. “This could be a dysfunctional political situation at a time of economic crisis,” said Gary Dugan, chief executive officer at the Global CIO Office. However, there may be some positive impact on Asia stocks if the dollar tops out, he added.
Meanwhile, tech shares extended a rebound on cheaper valuations, boosting benchmarks in Taiwan and South Korea. Key gauges in China and Hong Kong, however, dropped for a second straight day after a recent rebound. The decliners were influenced as Chinese producer prices fell into deflation for the first time in nearly two years amid lockdowns and new Covid cases in Beijing jumped. While Asia’s benchmark index has rebounded more than 7% from a recent trough, all eyes are on US consumer price inflation data due Thursday for a sense of the Federal Reserve’s next policy step. Growing lockdowns in China are also weighing on sentiment. “We don’t think the worst is over for Asian equities even though the markets have bounced back about 7% from the late October bottom and flows have picked up,” said Manishi Raychaudhuri, a strategist at BNP Paribas. “The Fed’s hawkish stance on inflation shall sustain till there are clear signs of core inflation peaking out.”
Japanese stocks fells: the Topix dropped 0.4% to 1,949.49 at the 3 p.m. close in Tokyo, while the Nikkei 225 declined 0.6% to 27,716.43. Nintendo contributed the most to the Topix’s loss, decreasing 7.1%. Out of 2,165 stocks in the index, 1,020 rose and 1,022 fell, while 123 were unchanged.
In India, stocks fell from their near-record levels as investors booked profits in recent outperformers such as ICICI Bank and Hindustan Unilever. Stocks across Asia were mixed as investors await midterm poll results in the US. The S&P BSE Sensex fell 0.3% to 61,033.55 in Mumbai, while the NSE Nifty 50 Index eased by an equal margin. Both indexes still trade about 1% short of their record levels seen in October last year. Fifteen of BSE Ltd.’s 19 sector sub-gauges dropped, led by consumer durable companies as trading resumed after a holiday on Tuesday. Tata Motors, the owner of Jaguar Land Rover, reported smaller-than-expected loss for September quarter, adding to Indian companies’ stronger show for the earnings season. Of the 44 Nifty firms that have announced results so far, 31 have met or beaten analysts’ estimates, while 10 missed. ICICI Bank contributed the most to the Sensex’s decline, decreasing 0.6%. Out of 30 shares in the index, 8 rose and 22 fell.
Australian stocks rallied for a 4th day: the S&P/ASX 200 index rose 0.6% to close at 6,999.30, boosted by gains in mining and real estate shares. A gauge of mining shares hit the highest since Aug. 26 after metal prices increased. Shares of gold miners, including St Barbara, were the benchmark’s best performers after the metal advanced on a slide in the US dollar. In New Zealand, the S&P/NZX 50 index was little changed at 11,143.48.
In FX, the Bloomberg Dollar Index rebounded and the greenback rose versus all of its Group-of-10 peers as risk assets turned lower. One-day hedging costs rallied across the major currencies, modestly higher than what the roll suggested, as focus shifts to Thursday’s US inflation report. Risk sensitive currencies, such as the kiwi and pound fell by around 1% against the greenback. The euro fell, but remained above parity.
In rates, Treasuries were mixed with the curve flatter, pivoting around a little-changed 10-year sector. Bunds outperform, bull-flattening sharply, while stocks hover near top of Tuesday’s range. US yields richer by nearly 2bp across long-end of the curve and cheaper by ~1bp across front-end, leaving 2s10s, 5s30s spreads flatter by 1bp and 2bp on the day, while 10-year at around 4.125% is little changed from Tuesday’s close. Bunds outperform by 4.5bp in the 10-year sector, gilts by 1.2bp. Focal points of US session focus include 10-year note auction and a couple of Fed speakers ahead of Thursday’s inflation data: the US auction cycle resumes with $35b 10-year at 1pm, followed by $21b 30-year Thursday; Tuesday’s 3-year note sale was strong, drawing a yield 1.2bp below the WI at the bidding deadline. Two-year German and Italian government bond yields inched up while falling further out. One trader has placed a large bet using options on German 10-year futures, targeting the yield to fall to 1.55% for maximum profit, down from about 2.25% currently
In commodities, WTI drifts lower to trade near $88. WTI and Brent futures are softer intraday as the Dollar claws back some recently lost ground and sentiment remain tilted to the downside, while China’s COVID situation remains an overhang for the complex. Spot gold fell roughly $7 to trade near $1,705/oz, swayed from gains to losses after testing resistance at its 100 DMA (1,715/oz) in early European hours, before a turn in risk sentiment spurred the Dollar and hit the yellow metal. Base metals are pressured by the downbeat risk tone and the firmer Dollar, but 3M LME copper holds onto a USD 8,000/t handle after testing USD 8,100/t to the upside overnight.
Cryptocurrencies slipped further as Binance’s potential takeover of embattled rival exchange FTX.com highlighted how strains in the digital-asset industry are buffeting some of its top players. Bitcoin traded as much as 7.7% lower.
To the day ahead now, and although investors will be digesting the midterm results, there are a few central bank speakers to look out for as well, including the Fed’s Williams and Barkin, the ECB’s Elderson, and the BoE’s Haskel and Cunliffe.
Market Snapshot
Top Overnight News from Bloomberg
A more detailed summary of global markets courtesy of Newsquawk
Asia-Pac stocks traded cautiously and US equity futures were indecisive as attention focused on the trickling results from the US Midterm Elections where a red wave has so far not yet materialised although Republicans are in a strong position to take control of the House, while the Senate race is still widely viewed as a toss-up. ASX 200 was led higher by strength in the mining-related sectors although upside was capped as financials are subdued following results from National Australia Bank which posted an increase in FY profit but warned of a significant slowdown in lending growth for the current fiscal year. Nikkei 225 faded its initial gains with price action lacklustre amid a slew of earnings and despite Japan’s Cabinet approving a JPY 29.1tln extra budget to fund the stimulus package. Hang Seng and Shanghai Comp swung between gains and losses with early strength in property names after China’s state planner asked large banks to step up lending for manufacturing infrastructure and developers, with China to provide initial support of around CNY 250bln in bond financing to private firms, although COVID-related headwinds persisted following a further increase in China’s daily infections and participants also reflected on the mixed-to-soft inflation data. Chinese developers jumped the most in eight months as a regulator expanded financing support for the sector.
Top Asian News
In Europe, major bourses hold a downside bias after seeing some choppiness at the cash open and following a somewhat mixed APAC handover. Sectors are all in the red with a clear defensive bias as Telecoms, Utilities, Healthcare, Food & Beverages post the shallowest losses, whilst Tech, Travel & Leisure, Real Estate and Retail reside at the other end of the spectrum. US equity futures traded sideways on either side of breakeven overnight and in early European hours but have since drifted under the overnight lows.
Top European News
FX
Fixed Income
Commodities
Geopolitics
US Event Calendar
Central Banks
DB's Jim Reid concludes the overnight wrap
As has been anticipated, it will take a few days to unpack the full results of the US midterms. What is clear at this hour though is that neither major party is running away with the election in a ‘wave’ and it appears that Republicans are still on track to achieve a majority in the House of Representatives, a combo that should put a pin in any new fiscal stimulus for the next few years. The New York Times model is currently showing that the Senate will likely finish with 50 seats each. So overall maybe Democrats slightly outperforming but it's not too far away from expectations. The mix also seems to not be surprising markets too much, as S&P 500 futures (-0.07%) are oscillating between gains and losses as we go to press. Our US team will be hosting a webinar later today to unpack the implications with the link to register here.
As we awaited the results of the midterm elections, risk assets continued to put in a decent performance yesterday, with the S&P 500 (+0.56%) advancing for a 3rd consecutive session. A reminder that if history’s any guide that could prove to be just the start however, since in all 19 post-war midterm elections, the S&P 500 has closed above its levels on the day of the election after a year. We highlighted this a couple of months ago and in yesterday's CoTD we showed how the 3 quarters from midterms have been the top 3 quarters for the S&P 500 since 1949 across the 4 year presidential cycle. However as I've eluded for a while, although I've thought midterms would be a short-term positive catalyst I suspect we won't see this record spell stretch into a 20th successive positive outcome 12 months on. I'm going to take a stab at why we should ignore history today in my CoTD.
Back to yesterday and gains were pretty broad-based for a relatively modest index-level increase, with over 70% of the index moving higher on the day, and only the consumer discretionary sector in the red (-0.30%) on the day thanks to Tesla’s (-2.93%) decline. The Nasdaq flitted around zero, trading as much as +1.70% higher and -0.87% lower before splitting the difference to finish up +0.49%. After the close, Mark Zuckerberg confirmed that layoffs would start at Meta tomorrow, which won’t help tech sentiment. The sentiment wasn’t any better following Disney’s after-hours earnings, which came in below consensus and had the company ready to find “meaningful efficiencies” in light of rising costs. Disney’s shares were -6.83% lower after the close.
The S&P 500 had a bit of a wild swing after Europe went home moving from +1.35% to -0.55% in the space of an hour before closing higher (+0.56%) as Bitcoin (long time no mention) plunged to $17,187 having been as high as $20,655 as European equity markets closed. It bounced back into the close and is at similar levels as we type this morning at $18,430. Crypto exchange FTX.com had been suffering from a liquidity crunch before rival Binance agreed to buy it yesterday and the associated story created a fair amount of noise, some of it creeping into equities. This morning in Asia there are a few concerns the deal isn't binding so one to keep an eye on. Before the late US vol, the STOXX 600 (+0.78%) hit its highest level in nearly two months, whilst the DAX (+1.15%) hit its highest level in nearly three months.
For sovereign bonds, the main focus is still on tomorrow’s US CPI report, but there was a decent rally ahead of that as investors modestly dialled back their expectations of future central bank rate hikes. For instance, the futures-implied rate for the Fed in December 2023 came down -6.1bps to 4.80%, having traded as high as 4.88% earlier in the European morning. In turn, that prompted a rally in Treasuries across the curve, with the 10yr yield down -9.0bps on the day to 4.12%, with roughly half of the decline in real yields, which fell -5.2bps. In the meantime, the 2s10s yield curve flattened -1.7bps to -53.1bps, remaining just above its post-1982 closing low of -57.3bps from last week. Meanwhile, in Asia, 2 and 10yr yields are back up a basis point.
Over in Europe, there was a similar sovereign bond rally, with yields on 10yr bunds (-6.3bps), OATs (-6.6bps) and gilts (-9.0bps) all lower on the day. At the front end however, UK gilts underperformed, with the 2yr yield up +5.3bps after BoE chief economist Pill said that “there is more to come” on rates following their 75bp hike last week. Overnight index swaps are currently pricing a nearly even split between a 50bps or 75bps hike at the next meeting in December.
This morning in Asia, equities are mostly trading lower led by the Hang Seng (-1.52%) with the CSI (-0.75%), the Shanghai Composite (-0.35%) and the Nikkei (-0.54%) all trading in negative territory. Elsewhere, the KOSPI (+1.00%) is bucking the trend.
We've had softer price data coming out of China as the nation’s producer price index (-1.3% y/y) in October fell for the first time in two years, down from +0.9% growth in September as strict Covid restrictions coupled with a sluggish property sector amid global recession risks dented the economy. Meanwhile, consumer inflation in October (+2.1% y/y) moderated from September’s 29-month high of +2.8% (v/s +2.4% expected) pointing towards underlying domestic price pressures remaining modest.
Staying on China, the Chinese yuan extended its decline for a third day, weakening past the 7.25 level against the dollar after the data. The subdued inflation figures suggests that the PBOC policy divergence against its global peers will continue.
There wasn’t much in the way of data releases yesterday, with Euro Area retail sales growing by +0.4% in September, in line with expectations. That said, there was a positive revision to August which showed that retail sales were unchanged, as opposed to the -0.3% contraction previously released. Otherwise in the US, the NFIB’s small business optimism index for October fell for the first time since June, coming in at 91.3 (vs. 91.4 expected).
To the day ahead now, and although investors will be digesting the midterm results, there are a few central bank speakers to look out for as well, including the Fed’s Williams and Barkin, the ECB’s Elderson, and the BoE’s Haskel and Cunliffe.
Some conciliation: Beto lost for the third time and Stacy the Hutt lost twice.
I think we used to all get drunk on Red Ripple...
Its NOT a ripple, was it a tidal wave like we were promised by those lying pollsters, NO it was NOT..but lets see, we will end up winning the house, we might win the senate after all, Laxalt is leading, Masters might win, and Walker has a chance in Georgia, so all and all if we barely win the house and we win the senate, what again is the problem?
The Truth Social SPAC, Digital World Acquisition, is down almost 16% today.
Republicans won the House and may very well win the Senate.
Proof you can’t trust pundits and polls. They blab on trying to make us think they’re the experts. Well. hate to burst their bubble but they’re nothing more than blowhards.
Elevated inflation combined with increased regulations and taxes leading to drops in the stock market.
What is not to like?/s
With the country going to hell, it should not have even been close. That itself is troubling.
abortion became a bigger issue than we ever realized. The left focusing on muh democracy that is NOT what helped them, it was abortion..the young commies came out in droves, they didnt care about this democracy nonsense, they cared about abortion and that is why the left kept on hammering over and over about it
It’s more like a Red Drool puddle on the pillow.
That is correct :)
So why didn’t it work in FL or OH?
Both states have voting integrity BTW.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.