Stock markets are higher as the positive sentiment in the US has boosted investor confidence on this side of the Atlantic. 

Europe

The rally on the back of the midterms acts as a nice continuation to the bounce back that started last month. The politics of the US acts as a nice distraction today, but it doesn’t change that fact that investors are still concerned about the budget situation in Italy, and the US-China trade spat.  

Marks and Spencer confirmed that first-half revenue dropped by 3.1%. Like-for-like (LFL) food and clothing sales fell by 2.9% and 1.1% respectively. The retailer is in the process of closing down less profitable stores, and that restructuring process has disrupted sales. Further store closures are to come, the firm expects ‘little improvement in sales trajectory’ and that has dented investor sentiment. The interim dividend was left unchanged, cash flow increased by 37.5%, and net debt was reduced by 12.3%. The restructuring process will take a few more years, but if the company can expand its online business, we should see better results down the line.

JD Wetherspoon shares are in the red after the company stated it anticipates profits to dip on the year. The firm stated that very low levels of unemployment has prompted wages to rise, and the pub group will give its staff a pay increase. The firm is planning on opening between five and 10 pubs this year, and the group confirmed that (LFL) sales for the 13 weeks until late October increased by 5.5%. The share price has been pushing higher since June 2016, and if it holds above the 1,100p mark, the outlook should remain positive.

ITV shares are lower today after the group said that revenue for the first nine months increased by 2%, but it foresees a 3% decline in revenue in the last three months of the year. The company cited uncertainty around Brexit for the cautious prediction surrounding revenue. There is a belief that companies will cut their advertising spending on the run up to the UK’s departure from the EU, especially in light of the possibility of ‘no-deal’ being achieved. The firm will allocate more adverting space on ITV hub, and the group will step up its video-on-demand business in a bid to compete with Amazon Prime and Netflix.  

US

Wall Street welcomed the outcome of the midterm elections. The Democrats will regain control of the House of Representatives, while the Republicans are tipped to retain the Senate. Historically, equity markets have performed well out of a divided Congress as traders feel the government finds it difficult to get new laws passed, and therefore not much changes. The US economy had positive momentum going into the midterms, and that is likely to continue.

The rise in popularity of the Democrats could be construed as a vote against Trump’s tough trade stance, and perhaps the White House might soften its position regarding China. There is speculation the Democrats are keen to improve infrastructure, and we are seeing a rally in Caterpillar. Mr Trump has set his sights on tech giants like Amazon, and the outcome of the midterms might make it more difficult for him to go after tech titans. 

FX

The US dollar index is lower due to the midterms. The Democrats are set to take back control of the House of Presentative, and dealers are worried we will not see any more tax cuts from President Trump. Republicans are tipped to hold control of the Senate. A divided Congress could bring about political deadlock, which might lead to the US economy growing at a slower rate.

EUR/USD has been lifted by the decline in the US dollar. The eurozone produced mixed economic indicators today, but traders focused on the soft greenback. On an annual basis, Italian retail sales dropped by 2.5%, while the eurozone wide retail sales increased by 0.8%.

GBP/USD was also lifted by the weak US dollar. The Halifax house price survey showed that average house prices grew by 1.5% in the three months to October – slowest growth rate since 2013. As per usual, Brexit chatter continues to do the rounds, but we are still none the wiser about the situation. The pound has firmly moved beyond the 1.3000 mark, but it might find its gains will be limited as uncertainty lingers.  

Commodities

Gold is largely unchanged today, which is a bit of a worry given how much the US dollar has fallen. Recently there has been a strong inverse relationship between the metal and the greenback but today that isn’t the case. It is possible that the risk-on sentiment of dealers is why there is been little interest in gold. 

Oil has been driven lower again on account of rising US stockpiles. The Energy Information Administration report showed that oil stockpiles increased by 5.78 million barrels, while the consensus estimate was for 2.43 million barrels. Gasoline stockpiles jumped by 1.85 million barrels, while traders were expecting a draw of 2.27 million barrels. 

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