Financial market research and analysis

Wall Street rallied a solid 190 points overnight as traders continue to claw back October’s heavy losses. A vast share buyback programme from Berkshire Hathaway lifted the stock 4% and raised sentiment towards financials across the board. This overshadowed another disappointing session from Apple and Amazon. The broader tech market closed 0.4% lower.

Taking the lead from Wall Street, Asian markets and European futures moved cautiously higher ahead of the US midterm elections today. This will be the first major popularity test of President Trump’s tax cuts and trade policies since he took office 2 years ago.

US midterm election expectations

The Democrats are broadly expected to flip the House of Representatives, whilst the House of Senate is expected to remain in Republican hands. However, the race in the House is very tight and could swing either way. In early trade this morning the dollar is trading higher versus the Japanese yen indicating that there is not much fear in the markets surrounding these elections despite it being the biggest political event of the year.

The fact is the economy remains strong which will keep the Fed on track to continue hiking regardless of the election outcome.

Dollar bulls are looking for a Republican win, which will be supportive of more of Trump’s expansionary fiscal policies being pushed through. A Democrat win, and the resultant political deadlock is considered more bearish for the US dollar and US equities although we expect this to be a short-term reaction. The unexpected result of a blue wave with Democrats taking both the Senate and the House would likely shock the markets resulting in an aggressive sell-off in the greenback and US equities.

Oil declines on gradual sanctions for Iran

After a 6% sell-off in the previous week, oil prices continued to decline overnight. News that Trump’s sanctions would be imposed gradually on Iran, to avoid any spikes in the price of oil, soothed supply fears. Concerns over much tighter supply had driven oil prices to 4-year highs in recent months. Yet, with sanctions being imposed gradually, US, Saudi Arabia and Russia increasing output to cover the shortfall and OPEC meeting next week to review their agreement on limiting output these supply concerns now appear misplaced.

Pound resilient as BRC retail sales slump

The pound was the strongest performing currency in the previous session, despite the dominant service sector activity hitting a 7-month low. The pound was once again trading higher even as BRC like for like retail sales showed a lacklustre 0.1% increase year on year in October.

Today, Theresa May will pile pressure on her Eurosceptic ministers to complete the Brexit deal. The pound, which is trading comfortably above $1.30, is pricing in a deal being agreed. Yet time is running out, the pound won’t stay elevated at these levels if there is no clear sign of a deal over the coming days.

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