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I. Market focus
At the beginning of Wednesday’s session, the U.S. midterm elections remained in the spotlight of global financial markets. Yesterday, the American voters went to the polls to elect members for each of the 435 House seats and 35 of the 100 Senate seats, as well as hundreds of state legislature, local mayoral races, and special ballot provisions. It was expected that the midterms’ outcome could lead to a significant change in the distribution of political powers in the U.S. legislature. The preliminary results showed that such expectations were totally justified, although for the Republican Party everything could be much worse. At the time of writing, it was obvious that the Republicans lost the majority in the House of Representatives. At the same time, Trump’s party kept control of the Senate. The control of the House of Representatives will allow the Democrats to block the reforms carried out by the Republicans, as well as launch investigations into Trump's presidency. At the same time, the Democrats will not be able to fully pursue their policies, as the president has the right of veto, and his term of office expires only in 2020. It is expected that the outcome of the latest election will result in the escalation of the confrontation between the two political forces in the United States in the next two years, which will eventually cause at least several government shutdowns.
The market reaction to the early results of the U.S. midterm elections was mixed. The trading in the U.S. dollar was rather volatile in the morning, while the U.S. stock index futures kept near the highs reached the day before, indicating a continued recovery after steep losses in October. Since the final results are unlikely to be very different from the preliminary ones, it is unlikely that they will be able to provoke significant movements in the markets. It should be noted that the loss of a majority by Republicans in one of the chambers of the U.S. Congress, which impedes the implementation of Donald Trump's initiatives, will most likely have a negative influence on the stock market in the future.
At the same time, investors’ reaction to the release of the New Zealand labor market data was much stronger. According to official data, the unemployment rate decreased significantly (from 4.5 percent to 3.9 percent) in the third quarter, while the number of employed persons (+1.1 percent q-o-q) rose. Economists’ had forecast the unemployment rate to stay at 4.5 percent and the number of employed people to increase by 0.5 percent q-o-q. New Zealand dollar reacted with strong growth to the data. It is expected this trend will preserve in the near future, and, possibly, will intensify, since a strong report on the labor market can significantly affect the plans of the RBNZ, which is to announce its rate decision later today (20:00 GMT).
The stock market participants continue to assess the earnings reports of companies. Today, the focus will be on the results from Twenty-First Century Fox, Inc. (FOXA), Novo Nordisk A/S (NVO) and Humana Inc. (HUM), set to be published before the market opens.
II. The market highlights are:
The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department on Tuesday showed the U.S. job openings decreased in September, retreating from an all-time high reached in the previous month. According to the report, employers posted 7.009 million job openings in September, compared to the August figure of 7.293 million (revised from 7.136 million in original estimate) and economists’ expectations of 7.100 million. The job openings rate was 4.5 percent in September, down from 4.7 percent in the prior month. The report showed that the number of job openings edged down for total private (-188,000) and fell in government (-96,000). Job openings increased in health care and social assistance (+71,000). The number of job openings dropped in many industries, with the largest decreases in professional and business services (-118,000), finance and insurance (-82,000), and state and local government, excluding education (-67,000). Meanwhile, the number of hires declined to 5.744 million in September from August’s all-time high of 5.906 million. The hiring rate was 3.8 percent, down from 4.0 percent in August. The number of hires was little changed for total private and for government, as well as in all industries. The separation rate in September was at 5.667 million or 3.8 percent, compared to 5.779 million or 3.9 percent in August. Within separations, the quits rate was 2.4 percent (flat m-o-m), and the layoffs rate was 1.1 percent (-0.1 pp m-o-m).
Statistics New Zealand reported on Tuesday the unemployment rate in the country fell to 3.9 percent in the third quarter of 2018 from an unrevised 4.5 percent in the second quarter. That was the lowest unemployment rate since the second quarter of 2008 and below economists’ forecast for 4.5 percent. The data also showed that the number of employed people rose 1.1 percent q-o-q in the September quarter (compared to a 0.5 percent q-o-q gain in the prior quarter), while the number of unemployed decreased by 10.7 percent q-o-q (compared to a 1.7 percent q-o-q gain in the previous quarter). The employment rate rose from 67.8 percent in the second quarter to 68.3 percent in the third quarter, the highest rate since the series began more than 30 years ago.
The estimates of Japan’s Ministry of Health, Labor and Welfare revealed on Wednesday that labor cash earnings rose somewhat slower than expected in September. According to report, total cash earnings increased 1.1 percent y-o-y in September, following a revised 0.8 percent y-o-y gain in August (originally a 0.9 percent y-o-y advance). Economists had expected the cash earnings would increase by 1.2 percent y-o-y. According to the report, both contractual gross earnings and scheduled cash earnings recorded a gain of 0.8 percent y-o-y in September.
III. Market Situation
The currency pair EUR/USD demonstrated a high volatility, but without a clear trend, as investors digested the preliminary results of the U.S. midterm elections. According to the latest information, representatives of the Republican Party will retain a majority in the Senate, but the Democrats have weakened Republican influence in the House of Representatives. Most likely, the outcome of the latest election will lead to the escalation of the confrontation between the two political forces in the United States in the next two years, which will eventually cause at least several government shutdowns. Today, market participants will continue to focus on the election results, while preparing for tomorrow's Fed meeting. Since the November meeting is not extended, it will not be accompanied by the update of economic outlooks and the press conference of the regulator’s chair. Another strong quarter of economic growth and job gains should keep the statement’s tone optimistic. It seems possible that the Fed may emphasize the recent volatility in financial markets, but policymakers have not appeared worried about the recent movements. Therefore, experts do not expect the Fed to signal any change to the current path of its monetary policy and believe that the Fed to leave its interest rates unchanged before hiking them again in December. Resistance level - $1.1549 (high of October 22). Support level - $1.1301 (low of October 31).
The currency pair GBP/USD rose slightly, approaching a three-week high, helped by a drop in the U.S. dollar index in response to the American midterm election results. Experts note that the restoration of the political stalemate in the United States will probably cool down expectations for economic growth or temper prospects for further fiscal stimulus. With an almost empty economic calendar in the UK ahead, traders will also focus today on the dynamics of the U.S. currency and the general market sentiment toward risky assets. On Friday, the data on the UK’s GDP for the third quarter will be published. Overall, the UK economic growth has underwhelmed this year, with real GDP rising just 1.2 percent y-o-y in the second quarter. It is expected that the UK GDP grew by 1.5 percent y-o-y in the third quarter. Meanwhile, if economists’ full-year forecast for GDP growth of 1.2 percent y-o-y is realized, it will be the weakest annual GDP growth rate since 2009. Resistance level - $1.3257 (high of October 12). Support level - $1.2951 (low of November 2).
The currency pair AUD/USD jumped to a high of September 27 but then pulled back to the opening level, due to a partial profit-taking by investors. The pair performance was also impacted the latest data on activity in Australia’s construction sector. The Australian Industry Group (AiG) reported that its Performance of Construction Index fell to 46.4 in October from 49.3 in September, pointing to a continued contraction in the construction sector of Australia. According to the AiG’s survey, activity, employment, new orders and selling prices all remained in contraction territory last month. At the same time, supplier deliveries, input prices and average wages all continued to expand, albeit at slower rates. Resistance level - AUD0.7314 (high of September 26). Support level - AUD0.7182 (low of November 5).
The currency pair USD/JPY showed mixed dynamics, as investors digested the outcome of U.S. midterm congressional elections and Japan’s data on labor cash earnings for September. The estimates of Japan’s Ministry of Health, Labor and Welfare revealed that labor cash earnings rose somewhat slower than expected in September. According to report, total cash earnings increased 1.1 percent y-o-y in September, following a revised 0.8 percent y-o-y gain in August (originally a 0.9 percent y-o-y advance). Economists had expected the cash earnings would increase by 1.2 percent y-o-y. According to the report, both contractual gross earnings and scheduled cash earnings recorded a gain of 0.8 percent y-o-y in September.Resistance level - Y114.09 (high of October 5). Support level - Y112.54 (low of October 2).
U.S. stock indexes closed higher on Tuesday, helped by a rebound in the tech sector. Investors digested a batch of mostly positive corporate earnings, while awaiting results from the U.S. congressional midterm elections. The focus also was on the Job Openings and Labor Turnover Survey (JOLTS), which showed the U.S. job openings decreased in September, retreating from an all-time high reached in the previous month. According to the report, employers posted 7.009 million job openings in September, compared to the August figure of 7.293 million (revised from 7.136 million in original estimate) and economists’ expectations of 7.100 million. The job openings rate was 4.5 percent in September, down from 4.7 percent in the prior month. Meanwhile, the number of hires declined to 5.744 million in September from August’s all-time high of 5.906 million. The hiring rate was 3.8 percent, down from 4.0 percent in August.
Asian stock indexes closed mixed on Wednesday, despite positive signals from Wall Street overnight. Investors assessed possible implications for markets from the U.S. midterm election results. Japan’s Nikkei fell slightly, as the yen firmed against the U.S. dollar, putting pressure on the Japanese export-oriented companies.
European stock indexes are expected to trade higher in the morning trading session.
Yields of US 10-year notes hold at 3.19% (-2 basis points)
Yields of German 10-year bonds hold at 0.44% (0 basis points)
Yields of UK 10-year gilts hold at 1.40% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in December settled at $61.83 (-0.61%). The crude oil prices fell moderately, as investors reacted to the latest data from the American Petroleum Institute (API), which revealed the U.S. crude supplies rose by 7.8 million barrels for the week ended November 2. Meanwhile, the gasoline supply reduced by 1.2 million barrels and supply of distillates fell by 3.6 million barrels. Market participants are now awaiting weekly data on U.S. crude inventories from the U.S. Energy Information Administration (EIA).
Gold traded at $1,229.40 (+0.21%). Gold prices rose slightly, due to the broad weakening of the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, fell 0.17 percent to 96.15. Since gold prices are tied to the dollar, a weaker dollar makes the precious metal cheaper for holders of foreign currencies.
IV. The most important scheduled events (time GMT 0)
Foreign Currency Reserves
Halifax house price index
Ivey Purchasing Managers Index
Crude Oil Inventories
RBNZ Interest Rate Decision
RBNZ Rate Statement
RBNZ Press Conference
Core Machinery Orders
|remaining time till the new event being published|
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