US futures slip ahead of the midterm elections – Daily Market Brief, November 8, 2022

After a second straight session of solid gains, US futures are pointing lower as voting in the midterm elections kicks off. Republicans are widely expected to take the House and possibly the Senate creating a gridlocked government for the coming 2-years.

·         A gridlocked government is often considered good news for stocks

·         Eurozone retail sales are forecast to rise as EUR/USD look towards parity

·         Disney will report Q4 earnings, which are expected to be EPS $0.56

Stocks in Europe are pointing to a mixed start, and US futures are pointing modestly lower after solid gains yesterday. The market mood is cautious as attention turns to the US midterm elections.

US citizens will be hitting the polls to vote at a time when inflation is at a multi-decade high, squeezing household incomes and as the possibility of a recession rises.

The outcome of the elections could determine how much the Biden administration will achieve in the final two years in office and how effectively the government will be able to respond to rising recession risks.

The most likely outcome is that the Republicans win the House and the Democrats retain the Senate. A divided government creates a gridlock situation, effectively paralysing the Biden administration for the remaining two years. Historically a gridlocked government has proved to be a bullish scenario for stocks as fewer changes make it through Congress and less meddling from politicians. This scenario could, to a degree, already be priced into the market, given the recent rally in stocks, so any reaction could be limited.

Should the Republicans win the Senate and the House, this could be considered USD negative, potentially limiting the government’s spending plans. Broadly speaking, the USD tends to favour Democrats, who support expensive subsidies for childcare and health and boosting workers’ wages; in other words, they tend to support plans which would drive up inflation and interest rates.

Eurozone retail sales

In addition to the midterm elections, Eurozone retail sales data is due and is expected to show a slight rebound of +0.3%, MoM in September, up from a -0.3% decline in August. With interest rates rising and inflation at a record high, sales could reflect the impact of high-cost pressures and the ECB monetary policy on consumption. Yesterday ECB President Christie Lagarde said that inflation was too high and reiterated the ECB’s commitment to lowering inflation. After briefly pushing above parity yesterday, EUR/USD trades at 0.9990 at the time of writing.

Disney Q4 earnings

Disney is set to release Q4 earnings today, as the share price trades down 35% this year. The parks and entertainment business is expected to have performed well as the recovery from the pandemic continues and despite growing concerns of a recession. Revenue in this segment is forecast to rise by 39%. In addition to the theme park’s recovery, streaming figures will also be under the spotlight. After Disney overtook Netflix as the streaming leader, it is expected to widen that lead. Expectations are for 38% year-on-year growth in subscriber additions, with Disney+ expected to add 9.3 million subscribers. The consensus EPS estimate is $0.56.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

Sources: Bloomberg, CNBC, Reuters

Original article provided by Trading Writers

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