US equities bounced back at the start of the week, with the S&P 500 convincingly up ahead of the US mid-term elections today, where a divided government in Washington is ostensibly bullish for equities.
Well, at least that's the conventional wisdom that is pretty straightforward. Gridlock cross-checks each party's "worst impulses," and less activist fiscal policy is conducive to lower market volatility. That could be particularly helpful in 2022 and 2023 to the extent it calms rates volatility, the principal sponsor of this year's historic cross-asset malaise.
We should have a sense of which party will control the House at the end of today. The Senate might be different because different states have different rules on the timing of accepting, processing, and counting mail-in ballots. Also, in the Georgia Senate election, there would be a runoff on December 6 if no candidate wins 50% of the vote.
Look for markets to trade political headline spin rather than substance today. Still, traders are unlikely to live a bullish life to the fullest ahead of Friday's US CPI, which will be the next marker for the FOMC on how high to take interest rates.
Oil
After bouncing convincingly on the speculation of China reopening and the likelihood of a shortage of barrels in early December when EU embargos Russian oil, traders are tasked with going through the arduous process of finding a suitable clearing price for long-positioned markets ahead of today's US elections and critical economic data
However, the very busy sell-off from Brent Oil mid-99s to mid-97s could be down to media reports around US/Russia de-escalation talks (Senior White House Official Involved in Undisclosed Talks With Top Putin Aides @WSJ). Any de-escalation on the Eastern Front will be a big negative for oil and grain markets but great for risk markets.
Foreign Exchange
Despite higher US yields, the devil in the details doesn't enamor US dollar bulls. US Treasury yields are higher across the board to start the week due to the bid tone in risk ahead of midterms and continued talk around China reopening. At the same time, a large slate of investment-grade issuance ahead of this week's Treasury auction schedule of 3s/10s/the 30s later in the week also weighed on the price.
Australia's highest-profile consumer confidence survey records a 6.9% m/m decline in November, the most significant fall since April 2020. In FX, however, AUD/USD has found a floor for now, with the positive follow-through from China reopening claims and rallying US equities dominating less hawkish RBA policy pricing.