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Wall Street closed near session highs overnight as investors looked ahead to the US midterm election results. Volumes were notably lower as many investors opted to sit on the sidelines as the Republicans and Democrats fight it out for control over Congress.
As results started to come in overnight, there have not been too many big surprises. Going into the midterms expectations were for the Democrats to flip the House of Representatives, whilst the Republicans would retain control of the Senate. Results are still trickling in at the time of writing and given that this is a tight race, things could change quite quickly. However, as an early bet, political analysts and the markets are starting to believe that predictions were correct, and the Democrats will flip the House. Overall, there are no nasty surprises so far and the results are shaping up more or less as expected.
Overnight the dollar dropped, and US futures pared gains as Democrats took around 10 Republican seats. The dollar is trading 0.4% lower, whilst S&P futures have pared gains to up 0.2%, down from a 0.4% rise. Movements in the futures markets are closely following predictions of a Democrat flip result.
Trader attention will remain focused on the US midterm election results as they continue to trickle in, by the time of the UK market open at 8 am, we would expect to have a clear idea of whether the Democrats took the house.
Brexit optimism lifts
The pound has been a standout performer over the last few sessions, trading close to six-month highs versus the euro. Sterling is also comfortably back over $1.31 versus the weaker dollar. Brexit optimism has been driving sterling, with the markets starting to price in a Brexit deal, even as Michel Barnier insists there is still a lot of work to do.
Theresa May warning her cabinet to be prepared to meet again later this week to approve an outline deal on Britain’s exit treaty is boosting optimism that a Brexit deal is literally just around the corner. The pound has been moving higher reflecting those hopes. If a deal will be signed at the extraordinary European Council meeting mid-November, then it must be agreed in the coming days.
Eurozone retail sales to dampen euro demand?
Looking out across today’s session there are a few points of interest on the economic calendar. Eurozone retail sales could see the euro pare some gains versus the dollar. Expectations are for retail sales to have slipped to 0.8% growth year on year in October, down from 1.8% the previous month.