Financial market research and analysis

Wall Street experienced a phenomenal session on Wednesday, jumping over 2%, in its best post-midterm election session since 1982. Democrats flipping the house was the outcome the markets had been expecting. Stocks surged on the prospect of political gridlock, easing any fears of quick changes to policy going forward.

As the dust settles following the midterms, the reaction in the dollar has been minimal. After some volatility in early trade on Wednesday, the dollar index closed the session just 0.15% lower, which it has already regained and more in trading overnight. Whilst political gridlock is expected, the markets are also cheering Trump’s more collaborative tone since the results.

FOMC to keep rates steady

As the midterms came and went with the expected result, traders are quickly turning their attention to the FOMC rate announcement later today.  The Fed are expected to leave rates on hold and reiterate plans to raise interest rates in December. We expect the tone of the FOMC statement to remain unchanged or be slightly more dovish in reflection of the marginally weaker US economic data across the month. Whilst the labour market is booming, there has been weakness in consumer spending, manufacturing and inflation this month which could be reflected in a subtly more negative tone to the statement. However, any dollar reaction could be limited as there is no press conference after this meeting and it comes after a meeting when rates were raised and ahead of a meeting when rates are widely expected to be raised. The Fed aren’t going to change their current trajectory of rate rises on the outcome of the election. They will stick to their current path until the data or financial conditions suggest to them otherwise.

Pleased that the US midterms passed without any major surprises, Asian markets rallied to a one-month high overnight. As the relief rally continues, European bourses are expected to open Thursday’s session higher.

UK house prices decline

Following Halifax house price report yesterday, UK housebuilders will once again be under the spotlight today. RICS data showed house price index fell to the lowest level in 6 years in October. Brexit uncertainty is keeping buyers on the sidelines, with those with the option of waiting to buy, doing just that. The last few months of the year are traditionally a weak spot for house sales anyway. However, throwing into the mix the uncertainty over the economic outlook owing to Brexit, and the drag on sentiment is unlikely to lift quickly.  In short, buyers want to know what Brexit will look like and therefore have an idea of the economic outlook before they purchase a house.

Pound higher for 5th straight session

Pound traders, however, continue to be more optimistic over the chances of a Brexit deal being achieved. The pound is trading higher for its 5th straight session versus the dollar as Brexit optimism keeps the pound comfortably above $1.31. Resistance in the region of $1.33 could keep gains within the familiar range unless a deal is achieved in the coming days.