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US midterms are the major event in the markets as Donald Trump signals he might be on the way back.

Trump revival? 

“I’m going to be making a very big announcement on Tuesday, November 15 at Mar-a-Lago,” the former president said. Will he make a return, or was he just geeing up the party faithful? Trump, currently the bookies’ favourite to win the White House in 2024, was speaking at a rally for Republican Senate candidate JD Vance in Ohio ahead of the midterm elections, which take place today. 

Midterms 

US midterm elections today might keep investors on the sidelines a bit before they make any major decisions. Looking for the shakeout once the predictions come in later before we see any significant fresh direction. This and inflation later this week are the main drivers for US equities. At present the idea of gridlock in Congress and slight softening of CPI is boosting sentiment. Gridlock or even a Republican clean sweep could result in more fiscal restraint, lower rates uncertainty and be a catalyst for further gains into the year-end, or at least into December before the highly anticipated final Fed meeting of the year, which is very much a ‘live’ in play meeting. Yields are just ticking up a bit ahead of the election with 10s at 4.23% - yields need to really shift downwards for the rally to kick on. My problem is that everyone seems to be saying that the market can/should/will rally after the midterms and it’s been a long time since one happened in a bear market so no one really knows if the bullish dynamic plays out the same this time around. My hunch is maybe stocks go a bit higher into Dec and then some uncertainty about the Fed will cool it off…as long as inflation does come in hot on Thursday. 

Fed persisting 

Richmond Fed President Thomas Barkin said the US central bank will “persist” in its efforts to bring high inflation under control. “Inflation should come down. But don’t expect its drop to be immediate or predictable,” he said. “Our rate and balance sheet moves take time to bring inflation down, but the Fed will persist until they do. One of the key lessons from the 70s was not to declare victory prematurely.” Higher for longer is still the message. 

US markets shrug off Apple warning 

The S&P 500 rallied 1% to recapture 3,800 and sit above its 50-day simple moving average, with the next leg to 3,900 for a move to 4,100 where the bear market rally probably breaks down. The Nasdaq composite added 0.85% to 10,564, shrugging off Apple’s supply warning. Meta rallied over 6.5% on reports it is about to lay off thousands of workers. The market liked the prospect of tighter cost control, though the big question mark over the metaverse project is hardly being answered.   

European stocks trade kind of sideways in early trading on Tuesday, with Frankfurt a tad firmer and Paris and London soft. Dollar firmer with Treasury yields up a touch, with gold a tad softer retesting the 50-day line at $1,672 after Friday’s big move higher from $1,630. Oil futures a bit lower this morning after spiking above the Oct swing highs yesterday.  

UK consumers rein it in 

UK retail sales growth slowing down as the cost-of-living crisis bites. BRC said spending in October rose 1.6% from the same month a year ago, lower than the 2.2% prior reading. This comes as Primark owner ABF warns consumers in a bit of a jam as costs rise. Management say “economic conditions are challenging and the outlook for consumer discretionary spending may well prove to be weak in the near term”. But ABF is not suffering right now even if it thinks there is a growing risk of recession and hit to next year’s profits – Primark sales were up 43% year-on-year to £7.7bn as footfall at stores returns to pre-covid levels, whilst Food sales rose 10%. Group adjusted pre-tax profits up 49%, dividend +8% and a new £500mn share buyback programme combined to send shares up 5% in early trade. A £200mn write-down on its German business took the shine off otherwise strong earnings. Shares remains down 27% YTD. 

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