Spreadex Market Update
US Midterms in Focus – USD Sell Off Pauses for Now
The decline in the US Dollar yesterday is a reflection of the uncertainty ahead of the US midterms which take place today. With fears that a Republican win in the house will lead to a new era of gridlock in US government, as well as the risk of Trump running for office again in 2024, there is a lot at stake in today’s voting. The decline in the Dollar was good news for risk assets which rallied yesterday. The main focus for traders today is likely to be on exit polls later in the US session which will no doubt cause plenty of volatility in markets ahead of the official voting results.
Key Factors for Today
- USD sell off pauses for now as focus turns to midterm voting
- Equities higher yesterday amidst USD weakness – FTSE remains under pressure
- GBP rallying on back of record BOE move last week
- Disney earnings due today
- Metals fail to capitalise on USD weakness – crude prices rally
Coming Up
- USD – US Midterm elections
- EUR – Eurozone Retail sales
- GBP – BOE’s Pill speaks
Stocks Rally Amidst Weaker USD – Volatility Risks Ahead
Equities markets continued higher yesterday, capitalising on the weakness in the US Dollar. The move higher came despite an uptick in yields and was also linked to ongoing optimism around China re-opening. The Chinese government announced the relaxation of some measures on Friday which has spurred an improvement in risk sentiment. Full re-opening is planned for March 2023 while markets await further details and further relaxing of restrictions along the way. Despite the better tone to markets elsewhere, the FTSE remained under pressure yesterday, weighed on by fresh strength in GBP.
Disney Earnings Due Today – Activision Shares Fall As Bookings Drop
US earnings season continues today with Walt Disney and Occidental Petroleum two of the key names traders will be focused on. Disney in particular will be closely watched with traders keen to see how its Disney+ streaming service performed last quarter given the fresh uptick in Netflix subscriptions. Yesterday, Activision Blizzard came in with a solid set of results, putting an end to three consecutive quarters of poor earnings growth. The gaming company posted EPS of $0.68 vs $0.49 expected on revenues of $1.78 billion vs $1.70 billion expected. Despite this, shares fell as traders reacted to news that the company’s net bookings were down year-on-year.
USD Decline Pauses for Now As Traders Look To Midterms
In FX, we’re seeing a more evenly split start today. On the back of yesterday’s heavy selling, USD is back in the green over the European open which is causing some pause in the rallies we saw elsewhere yesterday. GBP was among the biggest gainers yesterday, rallying over 2% against USD at its peak. With very little of note on the data sheet today, focus will be on the US midterm election as exit-poll results start to drip in later today. Voting results for the House elections might be completed tonight while the Senate voting might take a little longer. Any Republican win is likely to be bad for USD near-term while a Democrat sweep would likely see USD firmly higher.
Metals Lower But Crude Rallies on USD Weakness
In the metals and commodities space, both gold and silver remain weak today and were seemingly left out of the rallies we saw yesterday in response to a weaker US Dollar. The surge higher in equities prices likely detracted attention from metals, which were also held down by an uptick in bond yields. Crude prices were seen breaking higher yesterday amidst USD weakness but ran into selling pressure as they retested October highs. The backdrop of China re-opening optimism along with a weaker US Dollar looks likely to keep crude underpinned for now.
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