- Republicans have a roughly 70% chance of ousting Democrats from their majorities in the US House and Senate.
- Headline US inflation is estimated to have fallen in October to 8.0%.
- There is a likelihood of a US legislative impasse following Tuesday’s elections.
With one cautious eye on a crucial inflation update later in the week, E-mini S&P 500 (ES) futures investors appear at ease with the likelihood of a US legislative impasse following Tuesday’s midterm congressional elections.
The E-mini S&P 500 futures prices lost 4.6% last week and burned many bulls who had ridden the October surge that had raised prices more than 8% off its lows. Last week’s losses however seem to have been brought to a halt.
A break of the closing low on October 12 would be the seventh time this year that it has surged by 6% or more before turning around and plunging to new lows. Therefore, new lows might be hit if prices extend last week’s losses.
According to some investment models, Republicans have a roughly 70% chance of ousting Democrats from their majorities in the US House and Senate in the midterm elections. This would end any plans for Joe Biden’s administration to increase spending in a way that would exacerbate inflation.
An effective fiscal break may raise optimism that the Federal Reserve may gradually let off next year after relentlessly tightening monetary policy to contain sky-high inflation. However, some worry that this will restrict the government’s hands in the case of a severe economic crisis.
The US consumer price report on Thursday will provide an update on the scope of the issue currently at hand. Headline inflation is estimated to have fallen in October to 8.0%, its lowest level since February, even if it is still significantly above the Fed’s 2% objective. The “core” rate is anticipated to decrease to 6.5%.
The bond and interest rate markets have stayed calm entering the new week, despite another relatively strong US jobs report on Friday, with US 10-year Treasury rates swiftly retreating from 2-week highs. The dollar is weakening, and Wall Street stock futures like the E-mini S&P 500 are barely in the green. The calm might change as investors expect volatility from the US elections and the US inflation report later in the week.