Hunt for Savings and US Midterms in Focus

Midterms Update

Attention continues to focus on the US Midterm elections both sides of the Atlantic, where despite the Republicans looking set to take both houses, the GOP have had an underwhelming performance. Given the results so far, The Economist have reported that the election is “Not a Republican wave [but] more a weak little ripple” as candidates endorsed by Trump have also struggled to make ground.

Up for election has been the entire 435 seats in the House of Representatives and 1/3rd of the Senate (this House being made up of 100 Senators serving six-year terms with 1/3rd of the seats going to the electorate on a rolling basis every two years), as well as various State Governorships.

In the Senate, this election cycle was arguably more favourable to the Republicans, given that many of the seats up for grabs have historically been some of the Republican heartlands. At the time of writing, the results of the Senate’s Georgia, Nevada and Arizona seats are still unclear, and it may be a number of days until the final result are in. Though, in order for the Democrats to maintain control of the Senate, they will have to win two out of these three seats, which will be a tall order given where current polls stand. It is also worth noting that the State of Georgia requires their Senators to have a majority, rather than just a simple plurality of votes, and as such their race will likely go to a runoff election on 6th December.??

While the Democrats have made little progress, Midterms do tend to put strain on the party of the?inclement President, and as such pollsters had expected Democratic losses to be higher than they were. Indeed, Since Richard Nixon's first midterm election in 1969, only Jimmy Carter and Bush 45 were able to maintain their grip of both Houses of Congress and hence almost all Presidents have had to grapple with a divided Congress.

The Midterms have also taken their toll on Donald Trump who was widely poised to start his Presidential election campaign next Tuesday. For example, in the New York governorship race, Kathy Hochul yesterday declared victory over the Trump-backed Republican candidate Lee Zeldin. Meanwhile, Ron DeSantis won a decisive victory to become the Governor of Florida, and this will breathe momentum into his possible Presidential election bid in 2024.

Current results indicate that the Republicans have 210 seats in the House to the Democrats’ 192 while the Senate is neck and neck with each party having 48 seats. Hence all eyes will be on the next wave of results to see whether either party can cross the 218-seat threshold to maintain a majority in the House and the 51-seat threshold in the Senate.?

Hunt for Savings

As markets brace themselves for Jeremy Hunt’s Autumn Statement, the standard trickle of pockets of information from No.11 are continuing to flow downstream. Yesterday’s pocket of information centred around Hunt’s apparent plans to consider lowering the Additional Rate tax threshold from its current level of ￡150,000. This is a marked difference to only a few weeks ago, when the Conservative party announced that they would abolish the Additional Rate all together. Hunt’s Statement will come as the Sunak administration look to reduce the budget deficit and ease the nation’s debt which currently sits at 95% of GDP. Fiscal tightening to the tune of ￡55bn is expected with speculation growing around whether the Triple Lock pension will remain unscathed.?

Markets Await All-important US CPI Data

13:30 this afternoon will see the release of US CPI data where the general market consensus is predicting annualised print of 8%. This would represent a 0.2 percentage point fall from last month’s print, and a 1.1 percentage point fall from June’s high when inflation hit a four-decade record. Market expectations also expect core CPI to slip 0.1 percentage points to 6.5%. Investors remain more or less undecided over what the Fed’s next rate hike decision will entail, with around 67bpts priced in for December. Hence if today’s print surpasses expectations, markets may rally towards the dollar on the assumption that the Fed may be more inclined to opt for a more hawkish 75bpt hike.??

US Housing Market Continues to Slow

Yesterday’s data from the US’ Mortgage Bankers Association indicated that mortgage applications have fallen for the seventh consecutive time, illustrative of how the US housing market is continuing to slow. This comes as the average rate on 30-year mortgages in the States (the most common type), rose 8bpts yesterday to above 7.14% - its highest level since 2002. Rising mortgage rates – a by-product of the Fed’s rate hikes and general market sentiment – continues to exacerbate the cost-of-living crisis for millions across the US. As such, purchase demand is down 41% from this time last year and subsequent falling house prices may take some of the inflationary pressure heat out of the US economy.?

Hence all eyes will be on today’s US CPI data and subsequent price action in the money markets over Fed rate expectations.

Today in Focus

Aside from US CPI data (examined above), markets will also be focusing on Initial Jobless Claims in the US to gain an indication over the health of the US labour market which continues to be one of the primary reasons behind the high levels of inflation. This comes ahead of the BoC's Governor Macklem’s speech at 16:50, who will likely give his assessment on how Canada’s Central Bank will try to bring inflation down from 6.9% while not overly hindering growth which currently stands at 0.8% on a q-on-q basis. Focus will also continue to mount on the crypto markets where in the last hour we have learnt that Binance (the largest cryptocurrency exchange in the world), has dropped out of its plans to potentially bailout FTX which has seen over $6bn of withdrawals in the last three days and has sent shockwaves around the crypto market. ?

R.G.