Midterms matter; all about CPI, bitcoin rally stalls

US stocks edged higher as Wall Street awaits both the midterm elections which could bring an end to President Biden’s blue wave and a pivotal inflation report. Tuesday’s US midterm elections could be market-moving if we see a Democratic surprise or if Republicans dominate the polls, but most traders are zeroing in on Thursday’s inflation report. ​

It is still all about inflation and while this report might not be as hot as the last few, it still should show that rents and the core-service sector part of the economy are still hot. Inflation might not fall as quickly as some Fed members are expecting and that could support the idea that rates will stay higher for longer. ​ ​ ​ ​

All eyes on midterms 

The Democratic lock on Congress is likely coming to an end. ​ A divided government means we won’t be seeing a big fiscal stimulus response next year when the economy is in a recession. The official results might take a little while longer to come in but we should have a good picture on election night. ​ Republicans need just five seats to take back that House and most polls suggest that should not be difficult. ​ ​

The Senate is where it gets interesting. ​ A close election in Georgia could end up triggering a runoff election, while Nevada’s election is viewed as a tossup. ​ The Democrats are trying to defend Senate seats in Arizona, and New Hampshire, while Republicans want to keep their seat in Pennsylvania.

The reason investors are so fixated with this week’s inflation data instead of the midterm election is that it seems highly likely the Republicans will win one of the chambers this week. Even if the Republicans win both the House and Senate, the bullish reaction for risky assets might be short-lived. ​ ​ A Republican sweep this week would confirm that won’t see a major fiscal response from the Biden administration once the economy falls into a recession. What will also weigh on markets is that a Republican sweep increases the odds that next year’s debt ceiling talks could get ugly very quickly.

Crypto

Bitcoin was unable to push higher as risk appetite quickly faded this morning. ​ It seems bitcoin is still set on being a risky asset and that means it might struggle to do anything before we get past both the midterm elections and inflation report. ​ Bitcoin should still find a home above the $20,000 level post-midterms as long as we don’t get a Democratic surprise. A Republican sweep could support a push above the $21,000 level for bitcoin but that might not last until the latest inflation data. ​

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Senior Market Analyst, The Americas at OANDA

With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies.

Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news.

Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal.

Ed holds a BA in Economics from Rutgers University.