USD eases as Republicans are favored to take the House of Representative – Daily Market Brief, November 9, 2022

USD has fallen over the past three sessions as investors focus on the midterm elections. Early results suggest that the Republicans are set to win the lower house. The Senate is still too close to call.

·         China inflation raises concerns over the health of the economy, hitting sentiment

·         Oil falls for a third day as China COVID concerns rise & oil inventories build

·         Cryptocurrency fall after exchange FTX’s near collapse

Wall Street ended higher for a third straight session on Tuesday on midterm election optimism. As the market priced in gridlock in Washington, stocks pushed higher, and the USD has eased lower.

The Republicans are favored to retake the House of Representatives, while the Senate is still a close call, and results could take days. Historically US stocks rally following a gridlocked government as the government is constrained and Republicans will keep checks on Democrats’ spending policies. However, it is worth keeping in mind that these positive historical trends will not be important if inflation remains elevated.

The US economic calendar is relatively quiet today, with attention starting to shift to Thursday inflation data as the next risk catalyst. Core inflation has continued rising, reaching a 40-year high in September, even as headline CPI is moderating and could push higher in October. The data will likely set expectations for the Federal Reserve’s December interest rate meeting.

China Inflation

The upbeat close on Wall Street was followed by a mixed performance in Asia after China’s inflation data. While CPI eased from a 29-month high to 2.1% YoY, factory gate inflation fell for the first time in almost two years. PPI dropped -1.3% YoY after rising 0.9% in September. The data highlights weakening demand as COVID restrictions and global recession risks hurt the Chinese economy. The data hit sentiment, pulling Chinese stocks lower.

The risk-off mood points Europe to a weaker start on the open. The DAX is set to open -0.3% lower after rising 1.1% yesterday. The FTSE points -0.3% lower after 0.08% gains on Tuesday.

Oil

Oil prices are falling for a third straight session, dropping below $90 per barrel as COVID cases in China continue to rise. China, whose position on its zero-COVID strategy has been unclear in recent weeks amid rumors that it could be looking to exit the policy, appears to now be doubling down on its tough, economically damaging measures. Widening COVID restrictions in Guangzhou and other cities raises concerns over the oil demand outlook. Separately rising oil inventories are also keeping pressure on the oil price. According to the API, oil stockpiles rose by 5.6 million barrels, ahead of the 1.4 million barrels forecast. EIA inventory data is due later today.

Bitcoin

Cryptocurrencies across the board experienced a deep selloff yesterday and are weaker again today as a public bust-up between the CEOs of two of the biggest offshore exchanges came to a head yesterday. Binance announced that it would acquire FTX amid a liquidity crunch, which some argue the Binance CEO caused. FTX exchange, worth $32 billion in January, put a hold on withdrawals as users fled the three-year-old exchange. The story couldn’t happen on Wall Street, but anything can happen in the largely unregulated land of crypto. The drama comes at the end of a scandalous year for crypto, which saw the collapse of Celsius, and Voyager Digital after suspending withdrawals in a severe liquidity crunch. BTC/USD fell to 17,500 its lowest level this year yesterday and continues to trade below 18,500 today.

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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