North American News
Wall Street rallies on US midterm election implications and Fed outlook
- US stocks rally in the hope of political gridlock and a Fed pivot.
- US CPI this week will be key as will the results of the midterm elections.
Following a bullish session in Asia, with the Japanese index Nikkei 225 (JP225) reaching its highest level since the 15th of September at around 27,861 points, US stock indexes rose for the third straight session as voting began in the crucial midterm election. The widespread belief is that a Republican win will make it really hard, if not impossible, for Democratic President Joe Biden to carry out proposed tax rises. At the time of writing, the Dow is up 1.43%, the S&P 500 is up 1.15% and the Nasdaq is higher by 1.63%.
When combining the bullish prospects of the elections with a recent turn in sentiment surrounding the Federal Reserve, risk-on is the name of the game this week. Investors are hoping for a political gridlock that could prevent radical policy changes and for a slowdown in the pace of rate hikes from the Fed. Control of just one chamber of Congress by Republicans would put a block on President Joe Biden’s legislative push for more business regulations. ”Congressional Republicans have threatened a debt ceiling showdown next year in an effort to cut entitlements and Medicare if they win a majority in the House. In recent weeks, polls have been tilting in favour of the Republicans in both the House and the Senate,” analysts at Brown Brothers Harriman explained.
When can we expect results?
The Telegraph explains that ”the first wave of vote tallies are expected on the East Coast between 7 pm and 8 pm EST (12 am and 1 am GMT). An early indication of Republican success could come if the races expected to be close – like Virginia’s 7th congressional district or a US Senate seat in North Carolina – turn out to be Democratic.
By around 10 pm or 11 pm EST, when polls in the Midwest will be closed for an hour or more, it is possible Republicans will have enough momentum for experts at US media organisations to project control of the House.”
The market’s got hit with a wave of US dollar selling and it wasn’t clear what the catalyst was. Yield were lower so there was some backing but the dollar move was outsized compared to bonds or equities. One catalyst might have been a stronger lending impulse in China and what could be more stimulus to come.
The big drama was in the crypto space though. For a few days there has been a brewing fight between FTX and Binance — the two largest exchanges. Some real red flags went up when FTX appeared to stop processing withdrawals but the real bolt of lightning coming out of the blue came when Binance acquired FTX in a deal that appears to have been consummated in mere hours.
The hastiness of it and Binance’s warnings that it may walk away suggests some deep problems. FTX says it’s liquidity but everyone fears the worst and the selling in crypto has underscored that.
Bonds hold strong into the US midterms
- Auction stops through to help the bid
An hour ago, the US 3-year note auction went off at 4.605% compared to 4.617% expected in the when-issued market. That strong bid has spread across the curve with US 10-year yields falling as low as 4.12%.
I’d assume that the tail risk in the bond market today is that somehow the Democrats win the House and Senate today and continue to spend. If that’s the case, I’d expect long end yields up big tomorrow.
IBD/TIPP US November economic optimism 40.4 vs 41.6 prior
- The November read on US economic optimism from Investors Business Daily
Here’s one notable detail in the report:
“Just 20% of adults say their wages have kept pace with inflation”
That’s not surprising given that 10% wage hikes are rare but it underscores that people know they’re falling behind. That will put pressure on wages going forward.
Commodities
Gold bulls break a critical trendline as US Dollar bears move in
- Gold is on the move and on the backside of a key trendline.
- The US Dollar is under pressure to test a key daily trendline.
The Gold price is running higher on the day as the US dollar falls away while XAUUSD head close to the $1,720s scoring a high of $1,716.97 so far. DXY, an index that measures the greenback vs. a basket of currencies has come under scrutiny as it drops below the 110 mark, a level not seen in almost two weeks. This is also taking on a critical daily trendline, as illustrated below, a break which could be significant for the price of the yellow metal in the days to come. DXY was trading at a low of 109.39 so far from 110.61 as the high.
Risk appetite returned to the markets with attention turning to the midterm elections, with results that are due out later in the day. Investors are hoping for a political gridlock that could prevent radical policy changes and for a slowdown in the pace of rate hikes from the Fed. This in turn is weighing on the greenback, US yields and is thus beneficial for the price of gold.
Control of just one chamber of Congress by Republicans would put a block on President Joe Biden’s legislative push for more business regulations. ”Congressional Republicans have threatened a debt ceiling showdown next year in an effort to cut entitlements and Medicare if they win a majority in the House. In recent weeks, polls have been tilting in favour of the Republicans in both the House and the Senate,” analysts at Brown Brothers Harriman explained.
When can we expect US midterm election results?
The UK’s Telegraph explained that ”the first wave of vote tallies are expected on the East Coast between 7 pm and 8 pm EST (12 am and 1 am GMT). An early indication of Republican success could come if the races expected to be close – like Virginia’s 7th congressional district or a US Senate seat in North Carolina – turn out to be Democratic.
By around 10 pm or 11 pm EST, when polls in the Midwest will be closed for an hour or more, it is possible Republicans will have enough momentum for experts at US media organisations to project control of the House.”
Estimates of 2023 US oil production have collapsed since June
- The way we’re headed, Saudi Arabia will be asking the US to increase production
I’ve been questioning the EIA estimates of US oil production all year long. If you listened to the companies in oilfield services, there are no rigs, no pipe and no workers. Meanwhile, companies are being hit by inflation and pressure to remain disciplined. The ability to tap DUCs is basically done.
Since then, there has been downgrade after downgrade of US production.
Today we’ve gotten another round with the EIA revising 2023 US output growth estimtes to 480k bpd from 610k bpd, leaving US production at 12.31 mbpd next year.
That’s down from nearly 13.5 mbpd in June… that’s 1.2 million barrels per day of oil that’s not coming to market.
Oil has been the trade of the year in 2022 and with more headlines like this, it will be again in 2023. That said, anyone who was paying attention should have seen this coming.
EU News
Eurozone Retail Sales drop 0.6% YoY in September vs. -1.3% expected
- Eurozone Retail Sales came in at 0.4% MoM in September vs. 0.4% expected.
- Retail Sales in the bloc arrived at -0.6% YoY in September vs. -1.3% expected.
Eurozone’s Retail Sales rose by 0.4% MoM in September versus 0.4% expected and 0% last, the official figures released by Eurostat showed on Tuesday.
On an annualized basis, the bloc’s Retail Sales came in at -0.6% in September versus -1.4% recorded in August and -1.3% consensus forecast.
European Monetary Union Retail Sales (YoY) above expectations (-1.3%) in September: Actual (-0.6%)
European Monetary Union Retail Sales (MoM) meets expectations (0.4%) in September
Other News
China to step up infrastructure lending in Q4
- Xinhua report from earlier
China’s ‘systematically important banks’ will step up lending to the field of manufacturing and infrastructure in the fourth quarter of the year in an effort to boost economy.
The report said that the NDRC, China’s top economic planners, have recently convened several meetings requiring stepped-up lending in the fourth-quarter.
This report was out about four hours ago and didn’t get much attention but I think it’s at least some of the reason for the slump in the dollar.
The election makes for a difficult trade but the changes in China in the year ahead (especially covid zero) will have a much larger impact on the global economy than anything in Congress.
Cryptocurrency News
Bitcoin breaks the October spike low as the decline extends to 12%, lowest since June
- It’s a dark day in crypto as bitcoin falls to the lowest since June
Bitcoin has broken support at the October lows and is trading at the lowest since June. Support now is the two-day spike low from June, which extends to $17,605, or about $300 below spot. If that cracks, we’re back to late-2020 levels and we might be having a conversation about $10,000 (many would-be buyers have circled $11,000).
If you are in crypto, you’d consider yourself lucky to have bitcoin as Ethereum is down 18%, Solana down 30% and FTT Coin is in a death spiral.
Timber. Bitcoin is through $17,000 and ether now down 10%. The digital currency’s are in trouble. Oh, no.
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