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.
The results are still coming in. At the time of writing, there is a 50/50 shot at the Senate, and the Republicans have more seats in the House. No surprise.
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.
FX breaths thanks to softer US Dollar
The EURUSD made an attempt past its 100-DMA for the first time since February. Cable is back above the 1.15 mark, and the dollar-yen is consolidating a touch above its 50-DMA, which stands near 145 level.
Gold rallied above the $1700 level, clearing both the solid 50-DMA resistance, and the ceiling of the bearish trend building since March, after having formed a triple bottom near $1615/1620 range since September.
We could finally see the fortunes turn around for gold and the major currencies, if of course, the softening in the US dollar remains sustainable. And that, in return, depends on the economic data.
The US will reveal the latest CPI update tomorrow, and the strength of the figure will determine whether the dollar should be giving more field across the board, or not.
Speaking of inflation, inflation in China eased more than expected in October. The Chinese CPI fell to 2.1% in October, versus 2.4% expected by analysts and from 2.8% printed a month earlier. The producer prices fell, though less than expected, on the back of a slowing demand, mostly due to the absurdly tight Covid measures in China.
The weaker Chinese inflation could help global inflation ease, but it also means that the Chinese economy is slowing, and the slowdown is weighing on the world economy.
That may have weighed on oil prices yesterday, along with the latest API report that revealed a large 5.6-million-barrel build in the US inventories last week. The American crude lost more than 3.5% yesterday, after having traded at $94 per barrel, above the 100-DMA. The more official EIA data is due today, and could confirm a large increase in US inventories, whereas the expectation is just a tiny 300’000 barrel build.
Another crypto drama
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.
I will pass the details, but the latest selloff in FTT coin, triggered an industry-wide selloff. Concerns of stability and reliability of cryptocurrencies came back to the headlines, as we watched the world’s fourth biggest crypto exchange go rapidly in chaos in just a couple of hours.
Bitcoin fell 10%, below the $20K mark, and even tipped a toe below the June low, at around $17K, 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?
If history is any guidance, it should be fine. We will see a couple of days of high volatility and selloff, but the contagion will likely remain limited, and the survivors will carry on.
Yet, investors would be, once again warned, that they are operating in a mostly non-regulated industry, and problems could pop up anytime.