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Global Markets: Stocks, dollar hunker down for U.S. midterm elections

Reuters  |  LONDON 

By Marc Jones

(Reuters) - European shares sagged and the dollar and bond markets barely budged on Tuesday, as traders braced for midterm elections in the and potentially lively sessions ahead.

[.T] and Hong Kong had helped overcome another Chinese wobble [.SS], but [.EU] was in the 0.4 percent red as investors pounced on corporate earnings misses and pre-market caution dragged down Wall Street futures.

The elections mark the first major test of Donald Trump's sweeping tax cuts and hostile trade policies. Polls point to his losing control of the which could curb some of his policymaking power.

With so much at stake, currency market moves were extremely tight. The dollar hardly moved against the euro, lost ground to Brexit-bound sterling but made some back against the yen as dealers kept their options open.

"It is definitely not the time to buy the dip," said & Capital's Pau Morilla-Giner, referring to U.S. and globally-focused stock markets and risk assets.

"Everything that could go well for U.S. consumers in the last couple of years has gone well, but now the tide is turning... At the moment you are running out of drivers of growth in the U.S."

There was plenty for investors to digest from too.

Italian and Spanish stocks and bonds weakened as updated PMI figures confirmed euro zone business growth had fallen to a two-year low last month against the backdrop of trade tensions.

The future output index caused even more concern as it fell to a near four-year low.

"Euro zone companies reported a disappointing start to the fourth quarter," said Chris Williamson, at IHS Markit, which compiles the data.

Italian politics also played on the nerves too after had called on to change its budget at a meeting late on Monday.

With unlikely to bow to the demands any time soon, it pointed to a further escalation in the damaging feud and pushed Italian borrowing costs up 5-7 basis points on the day. [GVD/EUR]

"Twenty-five countries have entered into the excessive deficit procedure and no-one has ever got a fine, so my gut feeling is that they (Italy) won't get one, just a slap on the wrist," said Lyn Graham-Taylor, at

SPILL

The uncertainty over the U.S. midterms for U.S. stocks futures was understandable. The has risen 28 percent since Trump's election in November, 2016, which is more than under any other in the past 64 years.

MSCI's broadest index of shares ex-had edged up 0.4 percent overnight following a positive finish for Wall Street on Monday.

Japan's Nikkei also climbed 1.1 percent, although weaker Chinese markets and regional capped the region. [.SS]

suppliers such as Taiwan's were hit by a report that had told its assemblers to halt plans for additional production lines dedicated to the XR. The report had also driven shares 2.8 percent lower in U.S. trade.

While political gridlock between the and could hinder Trump's pro-business agenda and raise concerns about U.S. political instability, some analysts say this may have already been priced in by investors.

The index, also known as the "black swan" index, hovered not far from its 2-1/2-year low hit on Friday, indicating demand for options that provide protection remains tepid.

A higher skew typically indicates investors are buying more protection on heightened anxiety.

"Unlike the U.S. or the U.K.'s Brexit referendum, the upcoming U.S. (midterm) elections are not a binary event," said Yasuo Sakuma, at

"So it's unlikely to send stocks significantly in one direction, apart from initial quick reactions."

Safe-haven gold was little changed but in markets crude prices were down near multi-month lows after the allowed eight countries to continue buying from temporarily, easing the likelihood of a sharp supply drop.

U.S. Intermediate (WTI) crude futures slipped 0.5 percent to $62.80 a barrel, after hitting a seven-month low of $62.52 on Monday.

futures dropped 0.6 percent to $72.74 a barrel, near Friday's 2-1/2-month low of $72.16.

Both have slid more than 15 percent since hitting four-year highs in early October.

(Additional reporting by and in Tokyo; editing by and Ed Osmond)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, November 06 2018. 18:44 IST
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