US stocks gained, the US yields and the dollar slid on the expectation that a divided landscape from the US midterms would support stocks, and soften the dollar.

From an investor point of view, a Republican win in both chambers is a good outcome for the stocks. And even a divided government, which we will sure get, is better for the stocks than a Democratic win.

In cryptocurrencies, there is a drama going on between Binance and FTX, which are two big cryptocurrency exchanges, and that’s causing a renewed trouble across the crypto sector.

Bitcoin fell 10%, below the $20K mark, Ethereum fell near 15%, although the October support hasn’t been damaged yet, and more volatile and more speculation-sensitive tokens fell even sharper. Dogecoin for example lost 20%.

What will happen from here?

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Investors are tense and undecided into the US midterm elections today.

Joe Biden had a rough time since he is in office: he Covid pandemic, the war in Ukraine, the global energy crisis, the skyrocketing inflation, a pitilessly tighter Federal Reserve (Fed) policy, rising mortgage rates… all these factors will weight on the wrong side of the balance for Democrats at today’s election.

The consensus expectation is a divided government between White House and Congress. Republicans are favoured to take the House and have at least 50/50 seats at Senate.

What does that mean for the US monetary and fiscal policies, the financial markets, and the dollar?

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Week starts with blurred sentiment on the back of mixed US jobs data, and soft Chinese trade figures.

Chinese exports and imports unexpectedly shrank in October; this was the first synchronized drop since May 2020.

US jobs data was mixed, and triggered mixed market reaction, a rally that may not last long into the inflation data.

This week, US midterm elections & latest CPI update will be the major talking point.

On the corporate calendar, Disney, Occidental Petroleum and Rivian are among companies that are due to go to the earnings confessional this week.

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Investors got the policy pivot they were looking for this week; unfortunately, not from the Federal Reserve (Fed), but from the Bank of England (BoE) instead.

In a confusing way, the Bank of England raised its interest rate by 75bp yesterday, but announced that the city analysts have got the BoE’s terminal rate wrong, and that the future rate hikes from the BoE will be softer, given that the economic situation is alarming. Sterling dived, while gilt yields were steady to lower.

Elsewhere, in an extended market reaction to Wednesday’s Fed decision, the US dollar gained across the board, as investors repositioned for a more aggressive Fed tightening.

The thing that could throw cold water on burning hot Fed expectations is soft jobs data from the US. That’s also the only thing that could save the rest of the world from the worsening Fed aggression: rapidly deteriorating economic conditions in the US.

Due today, the NFP is expected to reveal 200’000 new nonfarm jobs in October, for an average hourly pay rise steady around 0.3%.

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Jerome Powell abated the latest risk rally yesterday, saying that the rate hikes will slow down, but the levels will go higher. Equities sold off, the yields jumped, the dollar gained, and hopes of seeing the end of the market turmoil got completely dashed.

The US 2-year yield soared to 4.90%. The Dow Jones lost more than 1.50%, the S&P500 dived 2.50% and Nasdaq fell more than 3%.

In the FX, the prospect of higher terminal rate from the Fed boosted the USD appetite. The dollar index gained yesterday, as the EURUSD slipped again below its 50-DMA, Cable slipped below 1.14, the dollar-franc is back above parity, the dollar-yen is set for another advance to 150 on the back of the diverging rate prospects between the Fed that is now set to increase rates slower, but higher, and the Bank of Japan (BoJ), set to do nothing, for now.

Gold is also under the pressure of a stronger US dollar and the higher US yields. Bitcoin, on the other hand, is surprisingly resilient to the broad risk selloff.

The barrel of American crude rose to $90, as the latest EIA data showed that the US crude inventories fell by more than 3-million-barrel last week, much faster than a 200’000 barrel decline expected by analysts.

Today, the Bank of England (BoE) is also expected to raise rates by 75bp today, but that expectation is down from around 100-150bp hike expected when Liz Truss was busy shaking the financial markets with her crazy mini budget. The BoE should no longer act twice as aggressively to compensate for the actions of an irresponsible government, but it still must fight the rising inflation in Britain.

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Jay Powell will probably hammer the dovish hopes, and the latest risk rally when he speaks following the FOMC decision today.

In preparation for an unpleasantly hawkish Fed statement today, the US 3-month yield spiked above the 4.20% mark, the level it was normally supposed to be in 18 months, the 2-year yield returned above the 4.50% mark, the US dollar index advanced and the US equities sold off, as yields jumped.

The ADP report is due a couple of hours before the Fed decision, and is expected to have eased below 200’000 in October. Any positive surprise will likely further boost the Fed hawks, and dampen the mood in risk assets.

In China, stocks extend gains on an unverified social media post that China will end its Covid measures. The Chinese foreign ministry spokesman said he was unaware of the plan. Disneyland in Shanghai was shut with people in it, after a Covid case was found in the park… I wouldn’t cry victory just yet!

In Britain, the first day of bond selling from the Bank of England was a success. The BoE sold 1$750 million worth of bonds, demand exceeded offer, gilt yields pulled lower and sterling was steady.

Airbnb fell 5% post-market on disappointing Q4 outlook, Sony jumped near 10% in NY as softer yen helped boosting sales, BP announced the second biggest quarterly results, while Abiomed jumped 50% after Johnson & Johnson announced to buy the company.

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Equities fell and bond yields rose, as the hawkish Federal Reserve (Fed) fears resurfaced before Wednesday’s FOMC decision.

The Fed starts its two-day meeting, and could call the end of the aggressive rate tightening and signal slower rate hikes to enter the final phase of policy tightening, before pausing. But the Fed will not want to throw the foundation of a market rally, which could play against its fight against inflation.

In the Eurozone, inflation hit a record high of 10.7% in October, versus 10.2% expected by analysts, and the European Central Bank (ECB) Chief Christine Lagarde said that inflation came from nowhere, ignoring a decade-and-a-half of aggressive bond buying that threw the foundations of the present spike in inflation, boosted by the pandemic, the war and a global energy crisis

The Eurozone yields spiked on expectation that higher inflation would mean higher ECB rate hikes in the future. But the euro didn’t gain, as currency traders priced in the rising recession fears that come along with the higher interest rates.

In Australia, the Reserve Bank of Australia (RBA) raised the interest rates by 25bp as expected and said there will be more rate hikes.

In Switzerland, the Swiss National Bank announced a 142 billion franc loss in the first nine months of the year; melting currency valuations, especially the melting euro, was to blame.

In precious metals, gold remains under pressure. The $1615 is the next important support. If the US dollar strengthens as a result of a sufficiently hawkish Fed statement this week, gold bears could pull out the $1615 support and tip a toe into the $1500s for the first time since April 2020.

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Despite the broadly disappointing Big Tech earnings, and the heavy selloff we saw in most Big Tech stocks, US equities ended last week on a positive note, thanks to record profits from US Big Oil companies, and a much better than expected reaction to Apple results.

American crude consolidates above the 50-DMA, but failed to clear the $90 offers last week, as recession fears prevent a further rally from developing.

This week, attention shifts to Federal Reserve (Fed), expected to raise rates by another 75bp. The Reserve Bank of Australia (RBA) and the Bank of England (BoE) are also expected to hike by 25bp, and 75bp respectively.

Elsewhere, news is not great. Russia decided to pull out of a deal to allow Ukrainian crop shipments; wheat futures jumped more than 5% this morning.

China’s manufacturing and services PMI slipped below 50, to the contraction zone in October due to Covid restrictions in major cities, and many cities are still dealing with lockdown measures, and Xi Jinping made sure to emphasize that he will continue to fight… the virus.

In Brazil, Lula won the election bearing Bolsonaro by less than 2 percentage points. The latter said he refuses the defeat, which means that we will see some more political uncertainty in Brazil in the coming weeks.

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An ugly week of Big Tech earnings is coming to an end, having wipe out hopes of seeing earnings boost gains across the stock markets.

Yesterday, Meta plunged more than 24%; Nasdaq 100 lost almost 2%.

And today won’t be any better, as Apple and Amazon also lost in the afterhours trading. Amazon lost up to 20%!

US Big Tech rather killed joy this week, so all eyes are on Big Oil to reverse mood. Exxon Mobil and Chevron will be reporting earnings this Friday and are expected to announce stunning earnings.

On the data front, investors didn’t know what to do with the mixed US GDP data yesterday. The latest GDP update showed that the US economy grew 2.6% in the Q3, exports boosted the headline figure, while imports fell - meaning that the domestic demand from the US weakened despite a significant appreciation of the US dollar.

On the central banks front, the European Central Bank (ECB) hiked the interest rates by 75bp at yesterday’s meeting, as the stubborn Bank of Japan (BoJ) maintained its interest rate unchanged at -0.10% at today’s meeting, while revising the 2022 inflation forecast significantly higher from 2.3% to 2.9%.

Today, investors will be watching one last thing on the macro front before the weekly closing bell – and that’s the September PCE index, along with the personal income and spending data. Any weakness could further weigh on the dollar before we close the week, and before next week’s FOMC meeting.

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Yesterday wasn’t not a good day for the US Big Tech. Google dived almost 10% after reporting disappointing results, while Microsoft sank almost 8%.

Nasdaq bounced 2% lower after having tested the major 38.2% Fibonacci retracement, a touch below the 11700.

And don’t expect the things to look better today. Meta dived another 20% in the afterhours trading, after announcing disappointed results.

On the macro front, however, the Bank of Canada (BoC) surprised with a softer-than-expected rate hike, and US home sales fell almost 11% in September.

The US dollar index dived below its 50-DMA yesterday. The EURUSD rallied above parity, as Cable advanced past 1.16.

Focus shifts to US GDP dat, the European Central Bank (ECB) decision, Apple & Amazon earnings today.

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