US open: Stocks rise as tomorrow's midterm election comes into focus

US futures

Dow futures +0.2% at 32486

S&P futures +0.2% at 3775

Nasdaq futures +0.2% at 10883

In Europe

FTSE +1.9% at 7142

Dax +21% at 13407

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Midterm gridlock could be good for stocks

US futures are rising, extending gains from Friday as investors continue to digest Friday’s numbers and ahead of the midterm elections tomorrow.

The US NFP showed that headline jobs creation was solid. However, the market homed in on a bigger-than-forecast rise in unemployment and slower wage growth inflation. Following the NFP report, the markets have re-priced Fed rate hike expectations for December to a 56.8% probability of a 50-bps hike, while a 75 bps hike is considered a 43.5% probability.

There is no high-impacting US data due to be released today. Instead, attention will be on Fed speakers who could shed more light on what to expect from the Fed in coming meetings.

Attention is also turning to the midterm elections tomorrow. The Republicans are expected to perform well at the expense of the Democrats. Should Republicans take back control of the House, and maybe even the Senate, political gridlock will be expected for the next two years, a situation which historically speaking has been favorable for stocks.

Corporate news:

Apple is falling pre-market after confirming that it will ship fewer iPhones owing to a COVID breakout in the Foxconn assembly point in China.

Meta is rising on reports that the social media company will start to announce a significant cut in headcount. Layoffs are expected to start this week.

Where next for the Dow Jones?

Having rebounded off 31750 the Dow Jones is heading higher, targeting 33,000, last week’s high, the round number and the falling trendline resistance. The RSI is above 50, and the 20 sma has crossed over the 50 sma, keeping buyers hopeful of further upside. Buyers will look for a rise over 33,000 to create a higher high, before bringing 33460 the August 26 high into focus. Sellers will look for a move below 317100 to expose the 20 sma at 31300 and the 50 sma at 30850.

FX markets – USD falls, GBP jumps

The USD is falling as investors reprice Federal Reserve rate hike expectations. Expectations of a 50-basis point hike in December have risen since the NFP, which has pulled the USD southwards.

EURUSD is rising, extending its rally from Friday, helped higher by better-than-expected data. German industrial production beat the forecast rising 0.6% MoM in September after falling -0.8% in August. Eurozone consumer confidence also improved by more than expected to -30.9.

GBPUSD is rising after steep losses last week, helped higher by improving risk sentiment. The pound is managing to look past data showing that house prices fell at the fastest pace since February 2021 and a survey by Deloitte which revealed that 6 in 10 Britain are looking to spend less this Christmas than last Christmas.

GBP/USD +0.72% at 1.1456

EUR/USD +0.2% at 0.9980

Oil steadies over $90 per barrel

Oil prices are stabilising hovering over $90 per barrel as investors digest the latest developments from China, the world’s largest oil importer which are balancing out easing Fed hike expectations in the US

China reported disappointing trade surplus data, highlighting the deterioration of both domestic and foreign demand. Over the weekend, Beijing also reiterated its commitment to its zero-COVID policy, a policy which has proved to be economically damaging to the country so far this year. The prospect of this policy continuing is a headwind for the oil demand outlook.

However, the market is also pricing in a slowdown in the pace at which the Fed hikes rates, which is helping risk assets higher and pulling the USD lower.

WTI crude trades -0.74% at $91.20

Brent trades -0.65% at $97.72

Learn more about trading oil here.

Looking ahead

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