US stocks climbed on Tuesday ahead of America’s midterm elections and the release of crucial inflation data later this week.
Wall Street’s benchmark S&P 500 added 0.7 per cent and the tech-heavy Nasdaq Composite rose 0.6 per cent. The moves come as US voters head to the polls, with the Republican party forecast to gain control of one or both of the two chambers of Congress.
The worst outcome for markets would be if a “few tightly fought races and legal challenges dragged on”, delaying results, said Joshua Shapiro, chief US economist at MFR consultancy.
But investors were also looking ahead to the publication on Thursday of October’s consumer price index, which may offer indications of the impact of successive interest rate rises from the Federal Reserve.
Higher readings would increase pressure on the Fed to raise borrowing costs by 0.75 percentage points for the fifth consecutive month when it next meets in December. Officials at the central bank on Friday suggested, however, that interest rates could soon rise by a smaller 0.5 percentage point, even as the Fed targets a higher terminal rate in its fight against inflation.
The data are expected to show headline inflation increasing at an annual rate of 8 per cent, down from 8.2 per cent in September. Excluding more volatile food and energy prices, core inflation is expected to have risen 6.6 per cent year on year, the same rate as the month before.
In government bond markets, the yield on the two-year US Treasury, which is particularly sensitive to interest rates, fell 0.06 percentage points to 4.66 per cent, while the yield on the 10-year also dropped 0.06 percentage points to 4.14 per cent. Prices fall when yields rise.
The dollar index, which measures the US currency against a basket of six peers, slipped 0.3 per cent, wiping out earlier gains.
The index has risen 15 per cent since the start of the year, though some analysts have begun to question how much further the dollar can rise.
Foreign exchange analysts at JPMorgan said their bullish view on the dollar was premised on “two pillars” — a hawkish Fed and weaker economic growth outside the US. The former remained “supportive”, the bank said, but talk of a potential reopening in China “gave risk markets another hope to latch on to”.
Kit Juckes, a macro strategist at Société Générale, meanwhile, said his conviction that the dollar’s rally was “on its last legs isn’t being challenged by the current trendless market”.
Elsewhere, Europe’s Stoxx 600 added 0.6 per cent by mid-afternoon, erasing earlier losses. London’s FTSE traded 0.1 per cent higher.
In Asia, equities in Hong Kong and China were down, with the Hang Seng index falling 0.2 per cent and the CSI 300 losing 0.7 per cent.