Market malaise and Dollar dips as USA heads into Midterms
By Liam Sheasby, News Editor
06 Nov 2018
Investors are erring on the side of caution today as the United States heads to the ballot box for the Midterm elections. The halfway point in the current administration’s tenure is expected to see the lower house of Congress, the House of Representatives, swing from Republican to Democrat based on current forecasts.
The US opened polling stations at 1pm GMT on the east coast, with the last region – Alaska – due to open this evening and close in the early hours of the morning. The first regional results are expected at 8am GMT on Wednesday, with more results as the day progresses.
In the run up to the elections the US stock markets have seen consistent sell-offs, falling between 0.4 and 1% as Apple’s losses weighed on tech stocks. Today the Dow, Nasdaq, and S&P500 have all opened with slight gains of around 0.1 – 0.3%. The hesitance to back the markets may change according to Hussein Sayed, the Chief Market Strategist at FXTM, who explained in a report out today that “investors may find that a gridlock produces more predictable political outcomes to model and value equities against.”
The US Dollar fared marginally better, gaining 0.1% off the back of the strong jobs data published last week; a small figure on the face of it but the highest growth since June 2017. The Dollar was also boosted by the Euro’s struggles last week and the Pound’s uncertainty around Brexit, but as the election nears and the Pound regains its footing the USD has lost value so far this week, down 0.23%.
The Bureau of Labor Statistics released new figures showing 250,000 jobs added last month – 60,000 more than predicted. This is being attributed to Hurricane Florence displacing those in transient or temporary jobs, with Robert Frick, a corporate economist at the Navy Federal Credit Union in Virginia, telling the press that “You can’t work on a jobs site if it’s underwater”.
One downside for President Trump of the improved job statistics is the likelihood of higher interest rates, with the CEBR (Centre for Economics and Business Research) suggesting that the Federal Reserve will likely increase rates in the next couple of months. This is based on evidence that the US unemployment is staying low at 3.7%, while wages for September showed a 3.1% increase compared to the same point in 2017.
The price of gold slipped last Friday by around $7 per ounce, causing the first loss in value for gold in five weeks. Today the price is around $1,229.80 per ounce, with the precious metal relatively idle while investors await the outcome of the latest American voting. The US market response to the election results around 12:30pm GMT will likely dictate the price of gold for the remainder of the week.
Donald Trump took to Twitter (as ever) in the run up to today’s voting to compare Democrat economics to those of struggling Venezuela, throwing in a dig about open borders as well.
One tweet that did stand out was Trump’s quotation of Scott Wren from Wells Fargo, who suggested that more restraint from the Federal Reserve could push the US markets back to this year’s highs.
“If the Fed backs off and starts talking a little more Dovish, I think we’re going to be right back to our 2,800 to 2,900 target range that we’ve had for the S&P 500.” Scott Wren, Wells Fargo.— Donald J. Trump (@realDonaldTrump) October 30, 2018
Criticism from the President levelled at the Fed, and Jerome Powell in particular, has concerned many investors over the level of independence the Fed has from government interference, though some have suggested that perhaps a previous tweet from the President about the markets losing value and the need to impeach whoever is president may have backfired after the most recent market correction, causing some embarrassment. Interest rate rises are making borrowing more expensive, which in turn typically slows down market speculation as companies prefer not to take risks.
Further potential interest rate rises and US inflation levels are likely to be the big ongoing story in American economics, with the US economy slowing down in the past 3-4 months as the US/China trade war drags on. Factor in the latest tariffs against Iran impacting the value of oil and it’s a recipe for disaster for President Trump. The man has survived all manner of scandals but it’s not inconceivable that inflation, through economic disruption, could be the straw to break the camel’s back. There has been lots of talk of impeachment proceedings and so far, nothing has stuck, but perhaps something much more inconspicuous like rising inflation could see the Republican support for Trump dry up as living costs rise. It wouldn’t take much to turn on the President, especially considering he cites himself as a political outsider.