Markets remain cautious ahead of US midterm elections

Frank Walbaum

Important news this week

Tue, 03rd, 04:30 CET AU Interest Rate Decision.

Tue, 03rd, all day US US Midterm Elections.

Thu, 05th, 13:00 CET UK BoE Interest Rate Decision.

Fri, 06th, 14:30 CET CA Unemployment Rate.

Fri, 06th, 14:30 CET US Nonfarm Payrolls Report.

Markets remain cautious ahead of US midterm elections

The US dollar remains largely directionless as investors wait for the outcome of the US midterm elections. Meanwhile, risk sentiment continues to deteriorate across several asset classes. The Australian dollar failed to gain support from today's RBA rate hike, with the central bank lifting its cash rate to 4.85%. Persistent inflation, which reached 4.3%, elevated underlying price pressures and higher energy costs were key reasons behind the decision. However, the move appears to have been largely priced in, while broader risk aversion continues to weigh on the currency.

Market talk

Equity markets are struggling to find support. Technology shares remain particularly weak as investors question whether massive AI and data-centre investments will generate sufficient returns. High valuations, rising financing costs and concerns about future profitability are adding pressure. The weakness is no longer limited to the Nasdaq, with the S&P 500 and Dow Jones also turning lower. This broader deterioration in equities is keeping cryptocurrencies under pressure. Bitcoin and Ethereum remain vulnerable to further losses, with little evidence yet of a sustainable recovery.
Oil has recovered after yesterday's sharp decline, keeping the broader upward trend alive. Persistently high energy prices could become an increasingly uncomfortable issue for Donald Trump, as they feed into inflation and weigh on household purchasing power. They could also make it harder for the Federal Reserve to consider further monetary easing.
The Japanese yen remains relatively weak against other major currencies, with little domestic impetus to change its direction. The euro and pound are showing comparatively stronger performance, while the dollar remains stuck in a broader holding pattern.
Precious metals continue to face selling pressure. Gold is approaching the psychologically important $3,900 level, while silver risks losing support around $49. Higher interest-rate expectations, a lack of safe-haven demand and broader position reductions are all contributing to the weakness. With markets still focused on the US election outcome and upcoming economic data, volatility could increase once investors receive greater clarity on the political and economic outlook.

Tendencies in the markets

Equities weak, USD sideways, crypto weak, oil positive, metals weak, JPY sideways.

Author

Frank Walbaum

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