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Opening Call:
Shares are headed for mild declines at the open on Wednesday. Asian stock benchmarks and Treasury yields were mixed; the dollar edged higher; while oil and gold were weaker.
Equities:
Stock futures point to mild declines for European shares, despite gains on Tuesday and U.S. indexes closing higher, as investors eye the potential implications of the U.S. midterm elections, which are expected to result in a divided government.
Investors will be hoping a more dovish U.S. Federal Reserve and government economic pump-priming will fuel solid equity gains in 2023, AJ Bell said.
Nonpartisan analysts are projecting Republicans will take control of the House of Representatives, leading to a divided government and potentially limiting the scope of the Biden administration's legislative plans.
Such an outcome is typically considered a boon for stock markets as it limits uncertainty and reins in both parties, investors say.
Still, investors caution that any boost to optimism will be limited, as the Fed follows its path of raising interest rates to bring soaring inflation under control and the global economy slows. Corporate earnings are also expected to suffer.
Unless there is some very unusual result to the congressional elections, investors will quickly turn their attention to Thursday morning's inflation report and its implications for Fed policy, analysts said.
Forex:
The dollar edged higher in Asia, after some Asian exchange rates breached psychological levels overnight on improved risk appetite and less hawkish Fed rate-increase expectations.
"U.S. data didn't really feature overnight, but U.S bond yields are lower and signs of a potential Republican swing at the U.S. mid-terms have helped risk appetite along," said ANZ.
Silicon Valley Bank said it is looking like the Republicans are going to win control of both houses of Congress.
If so, "optimism will rest on two pillars" -- pro energy Republican policy that will cool oil prices and then inflation, which is good for equities and bad for the dollar, and a split government that will keep spending in check as we enter "an environment where fiscal imbalances matter."
Bonds:
Treasury yields were mixed as investors awaited the results of the U.S. midterm election.
Republican control of one or both chambers would likely lead to gridlock on the legislative front, stymieing the potential for increased fiscal spending, analysts said.
The anticipated gridlock was seen as one of the main reasons behind Tuesday's decline in Treasury yields. Traders said part of the reasoning was that Republicans would be loathe to support the economy through a government-led rescue, making it less likely that the Fed would want to tip the U.S. into a deep recession through rate hikes.
Energy:
Oil futures declined early Wednesday amid divergent developments.
There were worries over supply shortages, ANZ said, noting OPEC+ has started to lower production in line with their agreement at the last meeting to reduce quotas by two million barrels a day.
However, rising cases of Covid-19 in China have also been weighing on market sentiment, ANZ added.
Oil futures have been buffeted by uncertainty about China's zero-Covid policy, which has clouded the nation's outlook for energy demand -- keeping a lid on crude prices.
For now, however, the near-term trend still favors the bulls, Sevens Report Research said.
"This week, midterm election results, CPI data (if it's dovish), or further developments in China regarding Covid restrictions could help drive futures through resistance and to new multimonth closing highs."
Traders also await the weekly U.S. petroleum supply report from the Energy Information Administration due Wednesday morning.
Metals:
Gold edged lower in Asia in a likely technical correction, after gold futures climbed overnight to their highest level since early October.
However, the recent fall in the dollar, Treasury yields and cryptocurrencies were all helping to offer support for the precious metal, said Fawad Razaqzada, market analyst at City Index and FOREX.com.
Also, gold's break above the $1,700/oz level means the short-term path of least resistance could now be to the upside, the analyst added.
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Copper prices were slightly lower, extending recent subdued trading.
Huatai Futures analysts expect the base metal to remain rangebound this week, pointing to a mixed bag of favorable and negative factors.
Chinese demand will likely pick up into the year-end peak season, while more regular refinery maintenance plans in the coming weeks could further weigh on supplies and support prices, they noted.
However, a slowing global economy and China's Covid-19 outbreaks remain "substantial uncertainties."
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Chinese iron-ore futures rose, as the steelmaking raw material continued its rebound from a broad downturn last month.
Galaxy Futures said the latest gains are likely driven by supply concerns, given lingering unfavorable weather conditions in Australia, one of China's biggest iron ore suppliers.
But the demand outlook remains weak, which means any change in sentiment could easily bring about volatility, Galaxy Futures added.
TODAY'S TOP HEADLINES
China's Consumer Inflation Eases in October
China's consumer inflation eased in October, while factory-gate prices fell from a year ago for the first time in nearly two years, reflecting weakening domestic demand as the economy cooled further.
China's consumer-price index rose 2.1% from a year earlier in October, easing from the 2.8% growth recorded in September, the National Bureau of Statistics said Wednesday. The result was lower than the 2.3% median forecast by economists polled by The Wall Street Journal.
Private-Equity Giants Are Latest Targets of SEC's Record-Keeping Probes
WASHINGTON-Wall Street's private-equity giants are the latest companies to face regulatory investigations over deal makers' use of banned communication channels.
Apollo Global Management Inc., KKR & Co. Inc., and Carlyle Group Inc. disclosed Tuesday that they face investigations over whether their employees used messaging apps such as WhatsApp to do business. They are the most prominent asset-management firms so far to reveal their exposure to a regulatory sweep that examines compliance with record-keeping rules.
Binance's Deal for Rival FTX Marks Power Shift Amid Crypto Turmoil
Cryptocurrency exchange FTX, months after looking like a shining survivor in a struggling industry, succumbed Tuesday to a sudden liquidity crunch of its own and agreed to be taken over by rival Binance.
The deal signals a power shift in the crypto world, which has been hurt by rising interest rates and investors' retreat from risk. The pact marks a victory for Binance founder Changpeng Zhao and a humbling comedown for Sam Bankman-Fried, the founder of FTX, which had been growing in size and recognition before a clash between the two men set off a series of events that shook investor confidence in his firm.
German Authorities Search UBS Offices in Russian Oligarch Probe
German authorities searched the offices of UBS AG in Frankfurt and Munich on Tuesday, part of a money-laundering investigation into sanctioned Russian billionaire Alisher Usmanov, according to a person familiar with the case.
A UBS spokesman confirmed the visits to its branches and said the bank is cooperating with authorities. A spokesman at the prosecutors' office in Frankfurt said neither the bank nor its employees are accused in its proceedings, and the searches were meant to obtain evidence.
EU to Probe Microsoft's $75 Billion Deal for Activision Blizzard More Deeply
The European Union's competition watchdog said it would pursue an in-depth investigation into Microsoft Corp.'s planned $75 billion acquisition of Activision Blizzard Inc., adding to the global scrutiny of whether the deal could harm competition in the videogame industry.
The European Commission, which opened its initial, formal probe of the deal in late September, said it is concerned that the deal may reduce competition in the markets for console and personal computer distribution, videogames and PC operating systems. It said it was concerned that Microsoft may block access to Activision Blizzard games to other game distributors, especially the publisher's most successful franchises such as Call of Duty.
Elon Musk Sells Almost $4 Billion of Tesla Stock After Twitter Takeover
Elon Musk sold almost $4 billion in Tesla Inc. stock after buying Twitter Inc. for $44 billion.
Mr. Musk sold 19.5 million shares in Tesla Nov. 4-8, according to regulatory disclosures made public Tuesday.
Meta's Mark Zuckerberg Says He Is Accountable as Company Preps for Mass Layoffs
Meta Platforms Inc. will begin laying off employees on Wednesday morning, Chief Executive Mark Zuckerberg told hundreds of executives on Tuesday.
The coming cuts are expected to total many thousands of employees and will likely be the largest of the year to date in the tech sector, The Wall Street Journal previously reported.
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Expected Major Events for Wednesday
07:00/SWE: Sep New orders & deliveries in industry
07:00/SWE: Sep Industrial Production Index
07:00/ROM: Sep International trade
07:00/DEN: Sep Balance of payments (provisional figures)
07:00/DEN: Sep External trade (provisional figures)
08:00/HUN: Sep Preliminary External Trade
08:00/SVK: Sep Foreign trade
08:00/HUN: Oct CPI
10:00/CRO: Sep Foreign Trade
10:00/CYP: Sep Foreign Trade (provisional)
10:00/MLT: Sep International Trade
11:00/IRL: Sep Industrial Production and Turnover
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11-09-22 0019ET
