Evening market comment: Stocks cautiously higher ahead of midterm elections in US


Stocks cautiously higher ahead of midterm elections in US

A mix of FTSE stocks is trading higher late Monday with no clear pattern forming other than for the Russian steelmaker Evraz which is leading the way up. Not much more clarity can be gained from other European indices which are also mixed while Italy’s budget issues and Brexit play out in the background.

Midterms to dominate next 48 hours

Tuesday will be crucial for the US stock markets as the country goes to the polls to decide on the set up of the US Senate and the House of Representatives. With both Houses currently Republican President Trump’s decision-making power has so far been largely unhindered and many of his policies have had to only go through a quick legislative approval process. But if the Houses’ setup changes – and polls seem to indicate that there is a high likelihood of that – this would dramatically change the legislative process and potentially block a number of business-related bills. Two of the three top US indexes are holding up with the DJIA trading 0.43% higher and S&P 500 up 0.20%, belying the underlying market anxiety that a Democratic majority might threaten the nearly 30% increase in US stock markets seen this year.

Britain’s service sector continues slowdown

Despite the frequently negative headlines, Britain’s economy is still expanding even with the threat of a messy Brexit looming over its head but every month is bringing an incremental slowdown. For instance, the PMI index for the dominant services sector came in at 52.2 in October, down from 53.9 the month before. Though this was significantly below a consensus forecast, what tends to be overlooked is that 50 is the benchmark figure and any number above it still indicates expansion. Sterling held up during the day trading close to 1.3023 against the dollar and 1.1423 against the euro, supported by reports that Britain might be close to a Brexit breakthrough on the contentious Irish border issue. It might be too early to cheer a resolution as the Prime Minister’s office talked down the reports and also because any deal still has to get past Tory Brexiteers who are highly sceptical about any compromises with the EU.

Iran sanctions start but eight countries excluded

Oil prices notched slightly higher as the second phase of US sanctions against Iran kicked in but the price move was relatively small because the US granted temporary waivers from oil-related restrictions to eight countries. These include the top four buyers of Iranian crude: China, India, South Korea and Turkey, and will keep the disruption to the flow of Iranian crude relatively low. particularly given that countries that are currently not on the list still have a chance to apply for similar waivers. Brent was trading $74 towards the close of London trading, up 1.72% on the day with shares of oil majors riding on the coattails of the rally.