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Dollar under pressure ahead of Midterms

Risk appetite rose on Monday as investors patiently waited for the US midterm elections to begin. The dollar fell across the board for a consecutive session as traders appear to digest last Friday's unemployment rise while waiting for yet another CPI report. Will this time be different, encouraging the Fed to slow down on the 75bps hikes seen in the past three FOMCs?

Key factors for today

• Investor appetite improves ahead of Midterms, dollar down


• Euro and pound back at major levels as EU/UK negotiations brew


• China to maintain zero-covid policy, adding uncertainty evidenced in oil and gold


• Liquidity offers sings of fears of global recession

US in a holding pattern

US equities drifted higher, with the dollar sliding ahead of a couple of major risk events due this week and after the Nonfarm payrolls last Friday:

a) Midterm elections kicking off today, Tuesday Nov 8, with results expected in a few days; and

b) CPI inflation data on Thursday, which are forecast to rise both the headline and core.

Major earnings releases after the close were a mixed bag, keeping the dollar under pressure, evidenced in the DXY performance as it hit 110.00. Apple finally addressed rumours of lower iPhone production, saying covid restrictions in China had impacted assembly and expected lower shipments.

EU-UK negotiations back on the table

Reports circulated that the UK government was looking to delay an election for the Northern Ireland government in the hopes of securing an agreement with Brussels ahead of the expected polls. A couple of months ago, in the tumultuous Truss premiership, EU representative Sefcovic had suggested less controls in the Irish Sea, which might alleviate the supply issues in Northern Ireland.

The British pound soared 1.30% on Monday, recapturing $1.15 again for what appears to be another attempt at $1.1650. On the other hand, EUR/USD is back to parity with $1.01 up next.

China reaffirms zero-covid policy

After a week of rumours that Chinese authorities might be getting ready to start easing covid mitigation measures, on Monday officials came out to affirm that the zero-covid policy remained in place. Commodities faltered, but equities managed to hold on to the gains from the prior week.

WTI formed a 'doji' bar after hitting a 10-week high at $94/bbl, and gold halted surging at $1683, but remains largely biased up. The Hang Seng index managed to close 5% higher despite the official announcement that zero-covid policy will remain in place.

Liquidity issues keep making headlines

One of the largest hedge funds in the world, Tiger Global, has reportedly lost more than half of its value due to the drop in tech stocks and sell-off in China. Top legal firms are reportedly cutting workforce as major merger deals are drying up, and preparing for a deep global recession.

Movers and shakers

• Walgreens Boots +4.1% to participate in WillageMD’s $8.9B takeover of Summit Health-CityMD


• Lyft -12% beat on earnings expectations, but the number of active riders was lower than expected and investors were disappointed by a drop in the EBITDA margin


• Clarus -25% after missing substantially on the bottom line and cutting guidance. Saw impact from freight costs continuing


• Take-Two Interactive -15% following earnings miss, cut outlook citing economic outlook and forex impact


• TripAdvisor -15% beat on revenues but earnings disappointed, said that macro environment would contribute to lower revenue in the coming quarter

On the docket

• EA reports Retail MoM and YoY Sales


• The API report is due ahead of tomorrow's EIA equivalent


• Midterm elections officially kick off


• China's inflation figures are to be reported overnight

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