A look at the day ahead in U.S. and global markets from Mike Dolan.
Running market assumptions of a Republican clean sweep of U.S. Congress in Tuesday's midterm elections appear wide of the mark so far from early results, leaving investors to ponder the implication for the 2024 race for the White House on top of the expected policy gridlock.
Incumbent Democrats enjoyed a stronger-than-expected showing, with a chance of retaining the Senate, limiting expected losses in the House of Representatives and taking important governors' races. After losing a key seat in Pennsylvania, Republicans must now win two of three Senate races in Georgia, Arizona and Nevada to take control of the chamber.
After a volatile trading session on Wall St on Tuesday, sideswiped in part by the latest implosion in the cryptocurrency universe, U.S. stock futures were in the red ahead of Wednesday's open. The dollar and Treasury yields firmed up.
A likely legislative impasse for the next couple of years had already been priced - sapping the dollar but buoying stocks and bonds on the premise no major new fiscal spend would take pressure off inflation and the Federal Reserve. But the resilience of the Democrat vote may now spark a rethink of the 2024 presidential race, not least as former President Donald Trump is expected to announce next week his plan to run again.
Regardless of the poll results, problems in the crypto world deepened amid fears of widespread contagion and selling following the near collapse of a major exchange on Tuesday.
Cryptocurrencies swooned again on Wednesday a day after the top exchange FTX buckled under a rush of withdrawals, forcing a bailout by bigger rival Binance.
Cryptocurrency mainstay Bitcoin, down almost 75% over the past 12 months, suffered a peak-to-trough swoon of 20% this week as a result - hitting its lowest in almost two years on Tuesday before finding a footing just above $17,000. But after a brief bounce overnight, it's slumped back 7% again on Wednesday.
Perhaps partly related to the crypto shakeout, shares in Tesla (NASDAQ:TSLA) dropped as much as 5% on Tuesday after filings showed owner Elon Musk sold almost $4 billion Tesla shares before his Twitter takeover.
Walt Disney (NYSE:DIS) shares tumbled 9% after the bell on Tuesday after the entertainment giant missed earnings forecasts and racked up more losses from its push into streaming video.
With world markets now keenly awaiting U.S. October inflation readings on Thursday, China said its factory gate prices dropped last month for the first time since December 2020, underlining faltering domestic demand as strict COVID curbs and a property slump hammer the economy.
Millions in the southern manufacturing hub of Guangzhou will be required to take COVID-19 tests on Wednesday in an effort to control the city's worst outbreak. But while China's broader stock indices were in the red on Wednesday, Chinese property developers' shares did bounce as regulators expanded a program supporting bond issuance in the crisis-ridden sector.
The yen held steady after Japan said it current account surplus fell in the first half of the 2022 financial year to its lowest in eight years, due largely to the soaring cost of imported dollar-priced commodities.
Key developments that may provide direction to U.S. markets later on Wednesday:
* Remaining U.S. mid-term Congressional election results
* Richmond Federal Reserve President Thomas Barkin speaks
* U.S. Treasury auctions 10-year notes
* U.S. Corporate Earnings: DR Horton (NYSE:DHI), Wynn Resports, Roblox
* Finance ministers convene at COP27 climate conference in Egypt GRAPHIC: U.S. election results – 2022 https://graphics.reuters.com/USA-ELECTION/RESULTS/dwpkdgwjkvm/graphic.jpg
GRAPHIC: Crypto implosion https://fingfx.thomsonreuters.com/gfx/mkt/gkvlwmoqkpb/One.PNG
GRAPHIC: China's October PPI turns negative https://graphics.reuters.com/CHINA-ECONOMY/INFLATION/dwvkdgwklpm/chart.png
(By Mike Dolan, editing by Robert Birsel mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)