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Stocks ease on US midterm results

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By Craig Erlam

Equity markets are mixed on Wednesday as investors continue to watch events unfold in the US for a sense of what impact they’ll have on sentiment.

The impact of the midterms will probably be short-lived, if at all, as far as markets are concerned.

Of course, the political implications may be significant if Democrats manage to retain control of the House and Senate, but at this stage, only one of those looks plausible which means deadlock in Washington.

The bigger takeaway from the election may well be what support there is for Trump-backed candidates and what that does for his own re-election hopes in two years. But that’s unlikely to sway markets now, with so much else to focus on.

Investors are more focused on the inflation data on Thursday and whether that will pave the way for a slower pace of tightening in December and early next year. There’s unease about the central bank’s views on the terminal rate but those could abate if we see a favourable inflation number on Thursday.

Oil eases amid surge in inventories

Oil prices are a little lower again on Wednesday after falling around 3% a day earlier. This came following a strong move in recent weeks in which crude prices rallied around 20% on the back of the OPEC+ output cut and the prospect of less restrictive Covid measures in China, which have not been confirmed.

The API inventory data came late in the day on Tuesday after the bulk of the losses had already occurred. If the large inventory build is confirmed by EIA on Wednesday, it will be interesting to see if it generates a bigger reaction in the markets, with Brent now trading back in the middle of the $90-100 range.

Gold surges ahead of CPI

A surge in gold on Tuesday saw the yellow metal smash through $1,680 and then $1,700 resistance and settle above, as risk appetite improved and the dollar retreated. While hard to attribute the rally to any particular event, the technical loss of both of those resistance levels won’t have done any harm.

Can it hold on to those gains once the latest inflation report drops? It may well be that gold’s revival, and dollar’s retreat, are driven by an expectation that the CPI data will be favourable, but we’ve seen the dangers of that are before. Especially when it comes to inflation data.

The next test to the upside for gold falls around $1,730, while prior resistance of $1,700 and $1,680 could now become support.

Turmoil at FTX sees cryptos plunge

For a long time, bitcoin has aligned itself with broader risk appetite in the markets, but it goes without saying that Tuesday was not one of those days. Cryptocurrencies were pummeled at the start of the week with bitcoin down 20% in two days amid concerns over FTX and the implications for the FTT token.

Alameda’s balance sheet is a major factor in those fears which has seen that pain spread to Solana, with contagion fears dragging on the crypto space as a whole.

Bitcoin fell to a near-two-year low at one stage and is down almost 3% again on Wednesday. Nervy days ahead for cryptos as Binance looks to come to the rescue.

 

Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.