US stocks finished higher on Monday as investors prepared for this week’s inflation data and the midterm elections, while keeping close tabs on China’s Covid-19 measures.
Wall Street’s benchmark S&P 500 added 1 per cent and the tech-heavy Nasdaq Composite closed 0.9 per cent higher in New York.
Monday’s session came on the eve of the US midterm elections. Pollsters expect a tight Senate race that could result in the Democrats losing their razor-thin majority, and Republicans reclaiming the House of Representatives, which could slow down president Joe Biden’s expansive economic agenda.
“If Republicans retake one or both chambers of Congress, sweeping fiscal policy changes seem unlikely over the next two years, absent a crisis like the one that occurred in 2020,” Wells Fargo economists wrote on Monday.
Shares of Digital World Acquisition — a special purpose acquisition company that plans to take Donald Trump’s social network public — surged 66.5 per cent on Monday after The Wall Street Journal reported on Friday that the former US president would this month announce a run for the 2024 presidency.
Investors are still processing the effect on global economic growth of the aggressive rate rise campaign by the Federal Reserve. The US central bank signalled last week that interest rates will rise slower, but higher than previously expected.
Jobs data last Friday also indicated the US labour market was still running hot, although a small rise in the unemployment rate helped ease those concerns. A reading on inflation in the world’s biggest economy, due later this week, should provide further clues on the trajectory for domestic interest rates.
In government bond markets, the yield on the two-year US Treasury added 0.07 percentage points to 4.73 per cent, while the yield on the 10-year was up 0.06 percentage points at 4.22 per cent. Prices fall when yields rise.
The dollar index, which measures the US currency against a basket of peers, fell 0.7 per cent.
Traders, meanwhile, continued to bet that China would soften its zero-Covid policy, a move they hope will boost flagging global economic growth.
China equities rose sharply, before trimming their gains, as the government said there would be no change to its stringent Covid prevention measures. The daily number of Covid infections in the country hit a six-month high of 4,420 on Saturday, official data showed. Hong Kong’s Hang Seng index added 2.7 per cent, while China’s CSI 300 rose 0.2 per cent.
Emmanuel Cau, European equity strategist at Barclays, said a “quick and broad reopening [in China] seems highly unlikely”, but that “there may be a case for authorities to turn more supportive of growth into 2023, which could be a game changer for markets”.
Adding to the sense of uncertainty, Chinese exports also contracted 0.3 per cent in October compared with the same period a year before, well below economists’ forecasts of a 4.3 per cent expansion. Imports also shrank 0.7 per cent, missing expectations for 0.1 per cent growth, according to customs data released on Monday.
Elsewhere in Asia, Japan’s Topix rose 1 per cent and South Korea’s Kospi gained 1 per cent. Europe’s Stoxx 600 closed up 0.3 per cent. The FTSE 100 fell 0.5 per cent.
European gas prices fell sharply on Monday, with Dutch TTF gas futures, the region’s benchmark contract, down as much as 10 per cent to €108 per megawatt hour. The wholesale European gas price hit an intraday high of €343 per MWh in late August but has dropped thanks to relatively warm weather and greater than expected supplies.
Investors welcomed better than expected German economic data. Industrial production rose 0.6 per cent month on month in September, better than the 0.2 per cent decline expected by economists polled by Reuters. Even so, Franziska Palmas, an economist at Capital Economics, maintained that Europe’s largest economy would plunge into a “deep recession” in the new year.
