Granted that it’s still very early days, but November is looking like a much healthier month for markets by comparison to the turmoil seen in October. Looking at the rather sanguine trading conditions on Wall Street to start the week, its almost like the 7% fall for the S&P 500 and the 5% drop in the Dow last month have already been forgotten. Thanks to confirmation of a Berkshire Hathaway buy-back of its own shares in August, financial stocks were lifted across the board, leading to a day of decent gains on the Dow and the S&P 500, although tech stocks lagged as shown by the negative close on the Nasdaq, with a broker downgrade on Apple creating some pressure on the tech sector.
Whilst the markets have been in a calm and reasonably optimistic mood to start the week, gains are being kept in check ahead of the US Congressional elections on Tuesday. Investor confidence could be dented should we see Democrats take control of the House and Senate as this would likely curtail the Trump Administration’s stimulus efforts. Though polls suggest that the Democrats are only favoured to take the House at this stage. But as we know, elections can be unpredictable (such as in 2016), so as voting numbers start to come in, the US Futures market will be the best indicator of the immediate market reaction.
In the currency market, both the British Pound and the Euro fared well against the greenback, rising 0.6% and 0.2% respectively. The Pound continued to trade north of the 1.30 level on reports that Brexit talks are progressing positively (and that they may allow for Britain to stay in the Customs union, although this has not been confirmed), but it looks a tricky currency to trade at the moment given how headline-driven the Brexit negotiations are, particularly when the headlines are of an unconfirmed nature.
Meanwhile the upside momentum in the Euro has continued with the EURUSD rate moving above 1.14 and within sight of key retracement level (1.1425) from its steep decline from the past two months. The Euro had a nice move higher off its session low of 1.1353 (hit when reports surfaced that the EU may impose sanctions on Italy), and should 1.1425 be cleared with any gusto, then an interim move back to the region of 1.15 is possible. But much will depend on what happens in terms of USD strength this week post the election result and heading into the FOMC.
The Aussie Dollar has enjoyed a new lease of life over the past week to trade above the US$0.72, thanks to a USD pullback and a rebound on global equity markets. Tuesday see’s the RBA interest rate announcement take place and while it would be a shocker if there was any change to rates, as ever the accompanying statement will be closely watched for signs of whether the central bank is adopting a more cautious tone due to negative headlines around Chinese growth and trade tariffs.
Elsewhere, WTI Crude settled around 0.7% lower despite the Iran sanctions taking effect this week. But with some countries given exemptions to keep importing oil from Iran, as well as increased supply from the likes of OPEC, Russia and the US, the supply forces right now are more than meeting demand which is keeping a lid on prices for now at least.
So, we’ve had a relatively positive start to the week, but it’s possible we may see some risk taken off the table in the hours leading up to the US elections. A surprise result such as Democrats taking control of both the House and Senate would arguably be viewed negatively from a market which craves economic stimulus. Let’s see what happens.
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Investors continue to grapple with inflation concerns; Surprise API oil build comes at a critical juncture; Even the hard-to-love EUR is trading higher