Global Markets Report - 08 November

Australia

Australian shares are set to edge higher after US stocks rose in afternoon trade on Monday ahead of a crowded week of corporate earnings, inflation data and midterm elections that could see a shift to Republican control of one or both chambers of Congress.

ASX futures were up 39 points or 0.56% at 6975 as of 7:00am on Tuesday, pointing to a gain at the open.

As of 3:30 p.m. ET, the Dow Jones Industrial Average gained 1.4%. The S&P 500 advanced 1%, as did the technology-heavy Nasdaq Composite.

For the rest of this week, traders are focused on Tuesday's midterm elections and Thursday's inflation data for October. The closely watched report is expected to show consumer prices increasing at an annual rate of 7.9%, down from 8.2% the month before. Corporate earnings are also due from such companies as Lyft -- set to report after the market closes Monday -- Walt Disney, Occidental Petroleum and Adidas.

Investors say they are watching for the possibility that Tuesday's election results could boost the stock market, especially if Republicans take the majority in the House of Representatives -- a scenario that nonpartisan analysts are projecting. That would lead to a divided US government, which some investors like because it reduces policy uncertainty.

This year, however, investors and strategists say any boost from the elections will likely be outweighed by interest-rate expectations, corporate results and economic data. "Market prices these days are a lot more governed by central bank expectations than by political expectations," said Florian Ielpo, head of macro at Lombard Odier Investment Managers.

In commodity markets, Brent crude oil slipped 0.6% to $US97.99 a barrel, gold edged down 0.35% to US$ 1,676.04.

In local bond markets, the yield on Australian 2 Year government bonds rose to 3.26% while the 10 Year rose to 3.90%. Overseas, the yield on 2 Year US Treasury notes rose to 4.72% and the yield on the 10 Year US Treasury notes was up at 4.21%.

The Australian dollar hit 64.78 US cents up from the previous close of 64.64. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged down to 102.42.

Asia

Chinese stocks erased opening losses to finish in positive territory, extending the upward swing sparked by reopening hopes last week even as Covid cases rise and officials reiterated their strict Covid policy stance. Market gains were led by energy and retail stocks. The Shanghai Composite Index rose 0.2% to 3077.82, the Shenzhen Composite Index increased 0.4% and the ChiNext Price Index was 0.1% higher.

Hong Kong stocks ended higher, extending the momentum sparked last Friday in part by market chatter about a potential loosening of China's strict zero-Covid policy. The benchmark Hang Seng Index rose 2.7% to settle at 16595.91, its highest closing in three weeks. Chinese developers led the gains. Country Garden jumped 11%, Times China advanced 16% and CIFI rose 16%.

Japanese stocks ended higher, led by gains in electronics and trading companies, after US jobs data on Friday have kept intact expectations for the Fed's slower tightening. Sumitomo Corp. gained 4.8% and Tokyo Electron Ltd. advanced 3.8%. Meanwhile, Teijin dropped 9.3% after cutting its fiscal-year net-profit view. The Nikkei Stock Average rose 1.2% to 27527.64.

Europe

European stocks ended the day mixed. The pan-European STOXX Europe 600 Index ended 0.33% higher at 418.34, the German DAX ended 0.55% higher at 13533.52, while the French CAC 40 Index was flat at 6416.61.

In London, the FTSE 100 closed down 0.48% in a lackluster start to the week, as optimism around China easing coronavirus-related restrictions gave way to the reality that any reopening is unlikely to happen quickly. The index's underperformance primarily reflected healthcare sector slides, as GSK reported that its Blenrep blood cancer drug trial failed to meet its primary endpoint, CMC Markets UK chief market analyst Michael Hewson said in a market comment.

"This was the second disappointment in the space of a month after the failure of its rheumatoid arthritis drug Otilimab at the end of last month, and has seen the shares drop sharply," Hewson said. Sentiment has also been cautious ahead of tomorrow's US midterm elections and the latest CPI report later this week, Hewson added.

North America

US stocks rose in afternoon trade on Monday ahead of a crowded week of corporate earnings, inflation data and midterm elections that could see a shift to Republican control of one or both chambers of Congress.

This week, traders are focused on Tuesday's midterm elections and Thursday's inflation data for October. The closely watched report is expected to show consumer prices increasing at an annual rate of 7.9%, down from 8.2% the month before. Corporate earnings are also due from such companies as Lyft -- set to report after the market closes Monday -- Walt Disney, Occidental Petroleum and Adidas.

Investors say they are watching for the possibility that Tuesday's election results could boost the stock market, especially if Republicans take the majority in the House of Representatives -- a scenario that nonpartisan analysts are projecting. That would lead to a divided US government, which some investors like because it reduces policy uncertainty.

This year, however, investors and strategists say any boost from the elections will likely be outweighed by interest-rate expectations, corporate results and economic data. "Market prices these days are a lot more governed by central bank expectations than by political expectations," said Florian Ielpo, head of macro at Lombard Odier Investment Managers.

Mr. Ielpo said if inflation shows signs of cooling this week, markets could "see a goldilocks period." Recently, his team has added exposure to stocks and bonds. About 50% of the firm's flagship multiasset portfolio is sitting in cash, down from 70% before the October stock-market rally.

Still, he noted, any forthcoming rally in the stock market is likely "to be highly temporary" and could ultimately reverse as the global economic outlook continues to sour.

Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth Management, said inflation was unlikely to fall to more "normal" levels until late next year. Such persistent inflation would lead the Fed to keep tightening monetary policy, even if it triggers a recession, he added. "The Fed is not going to pause or stop when they see inflation in the 8% area code," Mr. Stucky said.

Among individual stocks, Meta Platforms shares jumped 5% after The Wall Street Journal reported that the Facebook parent was planning to begin large-scale layoffs this week.

Palantir Technologies shares fell 13% after the data-mining company reported earnings that fell short of expectations and forecast slower sales growth in the current quarter.