Market Report.
🗳️ The US midterm elections are today, with polls showing a close race between Kamala Harris and Donald Trump that could impact US commitment to the rest of the world. European leaders are preparing for potential changes in transatlantic relations, with some calling for an EU army given uncertainty over US support. Ukraine worries support may fade under either candidate, though Trump could push a quick deal selling Kyiv out. In the Middle East, neither candidate is expected to significantly alter US backing for Israel or efforts to curb wider violence.
🚗 China has filed a WTO complaint against new EU tariffs on electric vehicles, escalating trade tensions valued at €739 billion annually. China argues the EU tariffs lack legal basis and violate WTO rules, urging the bloc to correct “illegal practices.” The EU tariffs of up to 45% were published last week and are in addition to existing 10% rates on some Chinese automakers.
📊 China’s parliament standing committee reviewed a proposal to raise the local government debt limit to replace hidden debt. The proposal aims to increase transparency by formally incorporating hidden debt into official government debt figures. Estimates suggest China has $7-8.45 trillion in outstanding hidden debt held by local governments. Raising the local debt limit would provide more funding to support public services spending by cash-strapped local authorities.
🛰️ SpaceX asked some Taiwanese suppliers to move manufacturing off the island due to geopolitical risks from China-Taiwan tensions. Wistron NeWeb Corporation began producing Starlink network gear in Vietnam reportedly due to SpaceX orders. Universal Microwave Technology, another SpaceX supplier, has invested in new Vietnam and Thailand factories. Taiwan has around 50 companies producing satellite equipment and components, supplying SpaceX.
📉 A third of items in the UK’s inflation ‘basket’ are now in deflation, the highest share since 2021, signaling more room for the BOE to cut rates. Most deflationary items (67 of 71) are goods, where supply shocks driving inflation are unwinding, unlike rising services costs. Goods inflation has slowed much more than services inflation, fueling by rising labor costs, partially explaining the BOE’s cautious rate cuts. The budget’s large fiscal stimulus could hinder further BOE rate cuts, which will be assessed in this week’s policy decision.
🛢️ Oil prices traded in a narrow range ahead of the closely contested US presidential election, after rising over 2% on Monday from the OPEC+ production delay. OPEC output rose in October as Libya resumed production, though extra Iraqi cuts limited the increase. Iran approved plans to boost output by 250,000 bpd, according to local reports. A Gulf of Mexico hurricane could reduce US production by around 4 million barrels this week.
Market View:
📈 US futures continue to trade weak, sideways awaiting the election results. The mini S&P 500 is trading around 4,755 points. The Nasdaq 100 trades at 15,160 points.
💵 The dollar index DXY falls after trying to regain 104 points, currently trading at 103.75 points. EUR/USD approaches 1.09 for the second time since yesterday. The 10-year Treasury bond is already trading above the 4.3% yield.
📊 In Europe, markets also remain sideways amid uncertainty. DAX 40 futures are trading at 15,260 points. The Eurostoxx remains at 4,870 points without regaining the 5,000 level.
🛢️ Crude oil markets rebound and normalise after the spread we mentioned last week. Brent crude oil is almost at 86 dollars, while WTI crude oil is close to 82 dollars. Gold continues to trade in the $1,750 area and could be creating a bearish pattern. Bitcoin remains near 29,000 after the big rally it staged at the end of October, currently trading at 28,875 dollars.
Geopolitics:
🌏 Australia and India’s foreign ministers expressed confidence that Quad cooperation (a joint security alliance) in the Indo-Pacific would continue regardless of the US election outcome. India’s FM Jaishankar noted the Quad was revived under the Trump administration in 2017. Jaishankar expressed confidence that the relationship between India and the US would only grow stronger following the election. In September, Quad leaders agreed to establish joint coast guard patrols and increase military logistics cooperation.
⚠️ Experts warn the aftermath of a close election could see dispersed unrest across multiple locations. The National Guard has been or will be activated in 19 states, while Washington DC, Colorado and others have troops on standby. Heightened security measures are being implemented in battleground states due to concerns over potential political violence around the US midterm elections.
