The US mid-term elections have given markets broadly what had been expected and the moves on the dollar and Treasury yields in response have broadly reflected this. A Democrat controlled House of Representatives and the Republicans holding the Senate. Aside from a little volatility there has been little to shift the trends of markets moving into the elections. Treasury yields are tracking higher and the trend of dollar correction is still in place, although relatively stable this morning. Democrats taking the House will crimp Trump’s policy ambitions and keep him in check. Yields are higher but perhaps they will be less aggressively higher (with potential for a curve flattening) as perhaps future tax stimulus plans may be restricted. However, equity markets have taken the ball and run with it, in a significant risk on reaction as perhaps some of Trump’s more belligerent policies both at home and abroad may be tamed. Focus now turns to today’s Fed meeting, which is likely to be a relatively tame affair. With recent growth and PMI data still showing the US economy strongly placed, there is little to shift the Fed’s tightening stance. A meeting without a press conference is historically uneventful and aside from perhaps a mild hawkish tweak expect little from the FOMC statement. Overnight we also had the China trade balance which at +$34.0bn was a shade lower than expected (+$35.0bn exp, +$31.7bn last), but data also suggests a rush to trade ahead of the most stringent tariffs, with exports +15.6% (+11.0% exp, +14.5% last) and imports +21.4% (+14.0% exp, +14.3% last).
Wall Street soared over 2% higher with the Dow (+2.1%) and S&P 500 +2.1% at 2813. Futures are just giving some of this back today at -0.2% currently, but Asian markets have been broadly positive (Nikkei +1.8%, Shanghai Composite -0.3%). European futures are pointing to a continuation of yesterday’s rally in early moves today. In forex, there is a degree of consolidation felt across the majors, with a sense that the dollar is just pulling back on some of the marginal losses that were seen yesterday. The New Zealand dollar has consolidated early today after the RBNZ shifted to a more neutral stance on monetary policy at its meeting yesterday. For commodities, gold and silver are continuing to slip a shade lower in early moves today, whilst oil is a touch higher but nothing yet to point towards any sustainable recovery.
Traders will be focusing on the Fed tonight, but this afternoon there will be the Weekly Jobless Claims at 1330GMT to consider first. There is currently no signs of claims starting to increase again, with 214,000 expected (the same as last week). The FOMC monetary policy statement is at 1900GMT and is expected to show the Fed continuing to pause every other meeting and hold the Fed Funds rate range at 2.00% to 2.25%. This is not a meeting with a press conference or updated projections so as tradition shows with this Fed tightening only at press conference meetings, as per usual there is no change expected. The FOMC statement could give a nod to the continued economic expansion that the US economy is showing, whilst but with core PCE at 2% for the past four months there is little need to do too much to change things.
Chart of the Day – AUD/USD
There has been an interesting turnaround in fortune for the Aussie dollar in