Morning market comment: The effects of US midterms and Iran sanctions on the financial market

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Midterm caution

European indexes are trading near the flat line this morning taking their cue from Friday’s close on Wall Street where a mood of caution has started to prevail ahead of the key US midterms elections on Tuesday. Asia, however, saw some determined profit taking early in the day after stocks there powered higher last week to make some of the biggest weekly gains in years.

US midterms

For the moment the US-Chinese trade dispute is taking a back seat as President Trump plunged himself into last-minute campaigning before the US midterm elections Tuesday. Many of the economic decisions Trump has since he has taken on as president have been possible or have gone through very quickly because he has a Republican majority in both Houses of Congress. However the vote Tuesday has the potential to upend that and if there is a change of the guard in one of the Houses, voting – and the passage of legislation – will become far more onerous. For all the public political criticism of Trump, the markets liked the Republicans in control of both houses and the declines across US stock markets reflect their worry about political change.

US waters down Iran sanctions

The week also sees the start of US sanctions against Iran, a process that created serious concerns with traders earlier in September. But they are turning into a damp squib. Not only did some of the USA’s biggest opponents say that they will outright defy the sanctions, but the US has now also watered down the rules allowing eight major buyers to continue buying Iranian fuel. From the heady heights of $86 at the beginning of October Brent is now trading at $72 and WTI is down at $62. While a lot of industries needing oil as a raw material and will welcome a decline in oil prices these numbers will start hurting big oil companies and will be visible in the next set of results.