Markets focus on US midterm elections and Thursday’s CPI data

 

Stocks rallied Monday as investors looked ahead to a packed week with congressional midterm elections and key inflation data on deck over the next few days, and shrugged off a supply warning from Apple.

Tuesday’s midterm election will determine which party will control Congress, and affect the direction of future spending. Democrats currently control the House, and have a majority in the Senate.

On the economic front, investors are anticipating that Thursday’s consumer price index report will give further insight into how far the Federal Reserve needs to go to bring down inflation.

The Dow Jones Industrial Average traded 1.3 per cent higher, while the S&P 500 gained almost 1 per cent. The Nasdaq Composite rose 0.9 per cent, after trading between gains and losses earlier in the session. All three major averages notched a second straight day of gains.

An interesting fact about the market selloff this year has been the lack of sustained volatility as measured by the VIX, this has been driven in part by the slow grind lower in the stock market, which has driven up costs without providing the sort of sharp selloff that provided mammoth payoffs in the early days of the coronavirus pandemic in March 2020 or the midst of the financial crisis in September and October 2008.

In company news, Apple warned that iPhone production could be disrupted by China’s COVID-19 restrictions. The company said its iPhone 14 Pro and Pro Max models are being affected by reduced production capacity after supplier Foxconn entered a weeklong lockdown at its Chinese based complex.

Facebook parent Meta Platforms reportedly plans to begin large-scale layoffs this week. The cuts are expected to affect thousands of its 87,000 employees and mark the largest round in a recent wave of tech job cuts, in an attempt to slash expenses. META shares advanced on the report and closed 6.5 per cent higher.

The US midterm elections are expected to have a big impact on climate policy and big tech oversight. The recent politicization of ESG investing could widen as US midterm elections could hand Republicans a majority in the House, potentially the Senate, as well as key state races that impact the energy sector.

Texas, Louisiana, and West Virginia have already pulled millions from firms like BlackRock for a perceived "ESG agenda”, that is basing investing decisions around climate change impact at the expense of profit considerations. 

It’s been a bruising year for ESG investing. Not only have ESG funds underperformed the broader market, but the investing strategy has found itself at the centre of a flurry of high profile attacks from conservative politicians and others railing against “woke capitalism.” Now comes yet another test: the midterm elections.

Across the sectors, Communication Services and Energy were the leaders with Natural gas prices soaring to their highest levels since September on predictions of much colder weather hitting the entire US soon.

And new research from Bank of America suggests investors are putting money into cash at the fastest pace since the onset of the COVID-19 pandemic. Cash funds saw inflows of $62.1 billion in the latest week, while gold funds saw the 19th straight week of outflows — the longest string of outflows since 2014. 

Currencies

One Australian dollar at 8:20AM has strengthened compared to the US dollar yesterday, buying 64.81 US cents (Mon: 64.12 US cents), 56.30 Pence Sterling, 94.99 Yen and 64.65 Euro cents.

Commodities

Iron ore futures are pointing to a 0.5 per cent gain.

Gold added $1.30 or 0.1 per cent to US$1677.90 an ounce.

Silver gained $0.09 or 0.4 per cent to US$20.87 an ounce.

Copper dropped $8.30 or 2.3 per cent to US$360.35 a pound.

Oil lost $0.68 or 0.7 per cent to US$91.93 a barrel.

Futures

The SPI futures are pointing to a 0.4 per cent gain.

Figures around the globe

Across the Atlantic, European markets closed mixed. Paris closed flat, Frankfurt added 0.6 per cent and London’s FTSE closed 0.5 per cent lower..

In Asian markets, Tokyo’s Nikkei gained 1.2 per cent, Hong Kong’s Hang Seng jumped 2.7 per cent and China’s Shanghai Composite closed 0.2 per cent higher.

Yesterday, the Australian sharemarket added 0.6 per cent to close at 6934.

Ex-dividends

Reckon (ASX:RKN) is paying 57 cents 60 per cent franked. 

Dividends payable

New Hope Corp (ASX:NHC). 

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.
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Source: Finance News Network