With the US Midterms having come and gone without major surprise, it’s a case of onwards and upwards for risk-assets with investors seemingly not fazed by the potential for gridlock that a split Congress may produce.
The three major US indices, namely the Dow, S&P 500 and NASDAQ all rallied more than 2% after the election results were by and large as expected in what was the biggest post-Midterm election rally since 1982.
But as with any election, there are winners and losers and so too is the case in financial markets. The US Dollar was 0.3% lower against a basket of currencies, while US bond prices rose, and treasury yields fell on expectations that the new makeup of Congress may not be quite as pro-growth as the previous two years, which may then impact the interest rate trajectory.
Speaking of which, the US FOMC are currently holding their monthly meeting, although no change is expected on rates for November. But while the FOMC are largely expected to be just going through the motions this week, next month’s meeting is looking more likely than not to produce a rate hike, according to Fed Funds futures pricing.
With the US Dollar playing towards its safe-haven tendencies and therefore softening in the wake of rising risk-appetite, currencies such as the Sterling, Euro and Aussie Dollar are continuing their efforts in making significant ground against the greenback.
The GBPUSD rate climbed a further 0.3% finish the US session around the 1.3130 level on reports that a Brexit deal may be reached by the end of this month. Further speculative buying could see the Cable reclaim it’s October highs of 1.3257, and although the consensus view is that a deal will eventually get done, the devil could well be in the details particularly concerning issues over the Irish border.
The EURUSD made modest gains and after coming within a whisker of the 1.15 level, the rate settled around the mid 1.14’s. Resistance in the 1.15-1.1550 level could be tested if the upcoming US FOMC statement doesn’t further increase speculation of a December rate hike.
The Australian Dollar is marching higher, having gained 0.4% during the offshore session with the currency again buoyed by rising equities and a softer USD. Technically, the Aussie still looks bullish with momentum indicators hinting that a run towards resistance in the 0.7350 area could be on should risk-sentiment remain high. Traders will be eyeing Chinese Trade Balance data today ahead of PPI and CPI data tomorrow (please see AxiTrader economic calendar for more information).
In commodities, crude oil continued its downtrend with US WTI down 1% to levels not seen since March this year. Oil has been one of the more volatile assets in recent months, with the latest decline sparked by news that US crude oil inventories were double what the market expected as well as data showing that US crude production hit 11.6 million barrels per day, which equates to a record output. So, with supply exceeding demand, the oil price has been on the slide but how long will this last? With reports that Russia and Saudi Arabia are discussing cutting output in 2019, are we due for a correction higher in the short to medium term? The oil price will be one to watch over coming months, particularly given the ability of energy prices to impact economic growth and individual company profits.
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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