Asian Markets Mixed Ahead Of US Elections, Inflation Data

Asian stocks were mixed on Tuesday ahead of the US midterm elections with trading likely to stay bumpy in a week that brings new inflation data and other events that could shake markets.

Tokyo's Nikkei 225 gained 1.3 per cent to 27,876.20 on strong earnings reports. The Kospi in Seoul advanced 1.1 per cent to 2,397.41 and Australia's S and P/AXS 200 gained 0.4 per cent to 6,958.90.

Hong Kong's Hang Seng sank 0.6 per cent to 16,488.44, while the Shanghai Composite index shed 0.8 per cent to 3,052.93. Thailand's SET gained 0.7 per cent. India's markets were closed for a holiday.

The week is full of potentially market-moving events, including US inflation data and the election, which could leave the US government split between Democrats and Republicans.

For Tuesday, at least, “Look for markets to trade political headline spin rather than substance," Stephen Innes of SPI Asset Management said in a commentary.

Every seat in the US House of Representatives is up for election this year, along with about a third of the US Senate. On the line is control of both houses of Congress, currently under Democratic leadership.

Voters are also electing governors in most of the states this year. They'll be in office in 2024 when the next presidential election happens and could affect election laws or vote certifications. Many state legislative and local authorities also are on the ballot.

A divided government would likely bring gridlock rather than big, sweeping policy changes that could upset tax and spending plans. Historically, when a Democratic White House has shared power with a split or Republican Congress, stocks have seen stronger gains than usual.

On Monday, the benchmark S and P 500 rose 1 per cent to 3,806.80 while the Dow Jones Industrial Average gained 1.3 per cent to 32,827.00 and the Nasdaq composite added 0.9 per cent to 10,564.52.

Analysts say a strong performance by Democrats in the elections could lead to increased spending to help the economy that might fuel inflation and leave the Federal Reserve obliged to continue to hike interest rates to get prices under control.

It may take a while to get clarity because of the process to count votes that came in through the mail.

Economists expect a report on Thursday to show the consumer price index rose 8 per cent in October from a year earlier, slightly lower than September's 8.2 per cent inflation rate.

Regardless of the outcome of Tuesday's vote, “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," Edward Moya of Oanda said in a report.

Higher rates put the brakes on the economy by making it more expensive to buy a house, car or anything else on credit, though they take time to take effect. Rate hikes could bring a recession, and they tend to drag on prices for stocks and other investments.

A fourth straight month of moderating inflation from June's 9.1 per cent rate could afford the Federal Reserve leeway to loosen up a bit. The Fed has said that it may soon dial down the size of its increases to half a percentage point, after pushing through four straight mega increases of three-quarters of a point.

Monday's gains for Wall Street came despite a shaky showing for its most influential stock. Apple rose 0.4 per cent after dropping earlier in the day. It had warned customers they'll have to wait longer to get the latest iPhones after anti-COVID restrictions were imposed on a contractor's factory in China.

Earnings reports are also causing share prices to swing.

The reporting season for summertime profits is roughly 85 per cent done, and S and P 500 companies are on track to deliver growth of a little more than 2 per cent.

Analysts are forecasting a drop in S and P 500 profits for the final three months of the year, of nearly 1.5 per cent. They had been forecasting growth of 4 per cent at the end of September.

In other trading, US benchmark crude oil lost 50 cents to $91.29 per barrel in electronic trading on the New York Mercantile Exchange. It lost 82 cents to $91.79 per barrel on Monday.

Brent crude, the international pricing standard, gave up 45 cents to $97.47 per barrel.

The US dollar was unchanged at 146.63 yen. The euro slipped to $1.0008 to $1.0016.