In last week’s US Midterm elections, the forecasted “red wave” did not materialise and a surprisingly strong performance from the Democrats saw them retain control of the Senate. They also have a chance that even the House could remain theirs, although that hope looks to be fading today (Monday) with Republicans edging ahead in a tight race. Either way, the outcome mat not be decided for a few days yet.
Last week was also very much about Thursday’s cooler-than-expected US Consumer Price Index (CPI) data. CPI was just 0.2% less than expected and equities responded with a strong rally – the S&P 500 ended the week with its best performance since June. Investors obviously saw much to cheer but some commentators have advised caution saying there remains plenty to be concerned about including the outlook for corporate earnings. It should also be noted that Fed Chairman Jerome Powell reiterated his view that the “historical record cautions strongly against prematurely loosening policy”.
Bonds also moved higher. Yields declined as investors raised their expectations of a 0.5% rate increase from the Fed in December, rather than the previously expected 0.75%. That outcome being priced by futures markets today at 80% likely. The US Dollar index fell to a 12-week low.
In the UK, GDP growth data showed that the British economy contracted by 0.2% in the third quarter – not good but less than the 0.5% anticipated by the market. UK investors are looking ahead to Jeremy Hunt’s autumn statement on Thursday when he announces the government’s plans to fix public finances and restore its credibility. He has said that tough decisions need to be made on tax and spending.
Shockwaves were sent through the Crypto space last week after FTX, one of the largest exchanges, officially filed for bankruptcy. Bitcoin and other Cryptocurrencies fell sharply.
There is hope that US-China relations can be prevented from deteriorating further and a first step is a meeting this evening between US President Joe Biden and Chinese leader Xi Jinping at the Group of 20 summit in Bali.
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