US focus will be on the mid-term election

Market movers today

In the US focus will be on the mid-term election. The Republicans are expected to be able to gain the six seats needed in the Senate to ensure that they will gain control of the Senate. The Republicans already hold a sizable majority in the House. However, the Republicans are unlikely to secure a two-third super-majority that will allow the Congress to overrule a veto from President Obama. Hence, it will continue to be a divided government. The mid-term election is unlikely to be a major game changer and the market impact is expected to be modest. Worst case outcome is probably if uncertainty is extended and a later second run-off election will be needed in a decisive state like Georgia, because none of the candidates got more than the required 50% in the first round of elections.
The European Commission will release revised macroeconomic forecasts for its member countries. In general we expect the Commission to revise its growth forecast lower relative to its latest forecast from May. In particular attention will be paid to the Commissionâ€™s forecast for public deficits.
ECB board members Coeure (8:40 CET) and Costa (10:00 CET) are both scheduled to speak today. However, they will probably be careful not to impact market expectations ahead of Thursdayâ€™s ECB meeting.
Riksbank deputy Governor Martin FlodÃ©n speaks and Danmarks Nationalbank is scheduled to publish Octoberâ€™s currency reserve figures. For more on Scandi markets see page 2.

Selected market news

US stocks ended the session broadly unchanged at around all-time high supported by the very strong ISM print. The headline ISM figure rose to 59.0 in October up from 56.6 in September. The strong report was a bit of a surprise to us given that many other indicators have indicated moderation in growth recently. US vehicle sales released overnight came out at 16.35m, broadly unchanged from the 16.34m in September. Market PMI manufacturing, also released yesterday, showed the second monthly decline and was revised lower from the Flash estimate. We still expect that US growth is moderating towards 2.5-3% in Q4 from the 3.5% level in Q3 but the ISM report underlines that the moderation in growth is likely to be muted, see Very robust ISM report.

The stock markets in Asia are trading in green this morning. Hang Seng is up 0.1%, while Nikkei jumped with an increase of 3.3% after being closed on Monday. Asian equities are still supported by the Japanese stimulus measures announced last Friday.

The WTI oil dropped to the lowest level in two years overnight after Saudi Arabia reduced the relative cost of its oil to US customers from next month.

The Reserve Bank of Australia kept the policy rate unchanged as expected.

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