Global stock markets had a strong day after the US mid term elections provided the expected outcome with the democrats taking control of the House of Representatives with the republicans actually extending their majority in the Senate. With the uncertainty of the elections out of the way, US stock indices finished the day well in the black with the S&P, Dow and Nasdaq all printing gains over 2%. The dollar dropped lower in the ‘risk on’ trading environment despite the US 10 year treasury yield maintaining recent levels, at 3.22% as we move into the Asian session. We had the RBNZ’s latest rate announcement this morning and as expected there was no change in the Official Cash Rate. There was also a similar message from the bank with officials indicating that the next move could be either way and they will continue to monitor data closely.
The markets reacted as expected through yesterday’s trading sessions with ‘risk on’ trades flowing through the market after what was a huge risk event really passed with little in the way of surprises. However, investors will now be analysing how long the feel good factor can last as we revert to type and go back to monitoring the main themes that have been dominating market moves up to the elections. It would be a much easier call if we hadn’t just experienced what was a torrid month for investors in October but it looks like we could be in for more volatility in the lead up to the new year. Not only will market participants be monitoring closely for any change in the Trump government’s tone and direction domestically, but they will also be assessing whether there will be any change on the international front with the meeting between President Trump and Chinese President Xi and the dialogue leading up to it, taking on a level of crucial importance in the next few weeks.
Looking ahead to todays trading and the fall out from the mid terms should continue to dominate market flows although the focus will swiftly move towards the latest FOMC rate announcement which comes out towards the end of the day. Once again there is no change expected and most analysts think we’ll see a similar upbeat message from the Fed that we’ve had from the last few meetings despite the market moves that we saw in October. Chinese trade data is also out earlier in the day and Asian based traders will be looking for further signs of slowing growth there.