A look at the day ahead in U.S. and global markets from Mike Dolan.
World markets appear at ease with the prospect of U.S. legislative gridlock after Tuesday's mid-term congressional elections, with one wary eye on a critical inflation update later in the week.
According to some investment models, there is roughly a 70% chance Republicans will win both the House and Senate majorities from the Democrats in the US mid-terms - dousing prospects for any new inflation-aggravating spending push by Joe Biden's White House over the next couple of years.
With stocks and bonds whacked all year by the Federal Reserve's relentless monetary tightening to rein in sky-high price rises, an effective fiscal brake may be encouraging hopes the Fed can eventually back off next year - even if some fret it also ties the government's hands in any steep economic downturn.
Thursday's U.S. consumer price report will update all on the scale of the problem still at hand, with headline inflation expected to have eased back in October to 8.0% - its lowest since February, even if still far above the Fed's 2% target. The 'core' rate is forecast to tick down to 6.5%.
Even after another relatively robust U.S. jobs report on Friday, interest rate and bond markets have remained calm into the new week, with U.S. 10-year Treasury yields quickly backing off 2-week highs. The dollar was on the backfoot and Wall St stock futures were marginally in positive territory.
Apple shares (NASDAQ:AAPL) were down 1.5% in Frankfurt trading after the tech giant warned on Sunday of lower shipments of its premium iPhone 14 models than first indicated following a significant production cut at a virus-blighted plant in China, dampening its sales outlook for the year-end holiday season.
Chinese stocks continued last week's tentative recovery, however, despite officials throwing cold water on any early end to draconian COVID lockdown policies. Some correction of the market's severe underperformance this year was about the only cogent reason given for the ongoing stock bounce.
The country reported on Sunday its highest number of new COVID-19 infections in six months, a day after health officials reiterated their commitment to strict coronavirus curbs.
In another illustration of the economic problems the restrictions have caused, China's exports and imports unexpectedly contracted in October, the first simultaneous slump since May 2020. China's foreign exchange reserves rose unexpectedly in October, official data showed on Monday.
In Europe, shares in UniCredit fell on Monday after a report of tensions between Italy's only bank that regulators deem of global systemic relevance and European Central Bank supervisors.
France's central bank chief Francois Villeroy de Galhau was reported as saying the ECB must keep raising interest rates until underlying inflation has peaked, but may slow the pace of hikes once rates hit a level that starts to restrict growth.
Elsewhere, delegates from nearly 200 countries kicked off the U.N. climate summit in Egypt on Sunday with an agreement to discuss compensating poor nations for mounting damage linked to global warming, placing the divisive topic on the agenda for the first time since climate talks began decades ago.
Key developments that may provide direction to U.S. markets later on Monday:
* U.S. Conference Board Oct Employment Trends Index, U.S. Sept consumer credit data
* Cleveland Federal Reserve President Loretta Mester, Boston Fed President Susan Collins, Richmond Fed chief Thomas Barkin speak
* U.S. Corporate Earnings: Mosaic, Alliant Energy (NASDAQ:LNT), Diamondback (NASDAQ:FANG) Energy, NRG Energy (NYSE:NRG), NiSource (NYSE:NI), Solaredge Technologies, Activision Blizzard (NASDAQ:ATVI), International Flavors & Fragrances (NYSE:IFF)
* United Nations climate conference in Egypt. Eurogroup finance ministers meet in Brussels. European Central Bank President Christine Lagarde and ECB board member Fabio Panetta both speak. And Bank of England chief economist Huw Pill speaks.
GRAPHIC: U.S. Inflation https://graphics.reuters.com/USA-STOCKS/znvnbdgzmvl/inflation.png
GRAPHIC: 2022 U.S. elections poll closing times https://graphics.reuters.com/USA-ELECTION/POLL-CLOSE/gkvlgrknzpb/chart.png
GRAPHIC: China stocks underperform https://fingfx.thomsonreuters.com/gfx/mkt/myvmomrdovr/One.PNG
GRAPHIC: Money flows into Chinese bond and equity funds https://graphics.reuters.com/GLOBAL-MARKETS/dwvkdgmmopm/chart_eikon.jpg
(By Mike Dolan, editing by Andrew Heavens mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)