05-NOV-2018, MONDAY

1) Asian Stocks Wilt Across Board, US Midterms, Central Banks Eyed
2) Fed Rate Hike Bets, US China Trade Deal Doubts May Sink AUD/USD
3) Crude Oil Price Drop May Stall Before US Midterm Elections

1) Asian Stocks Wilt Across Board, US Midterms, Central Banks Eyed

Asian stocks were broadly lower Monday despite some late vigor from Wall Street last week, Investor worries about weaker global growth and the effects of higher US interest rates seemed to be in charge. Chinese President Xi Jinping tried to position China as a globalization’s standard bearer in a speech kicking off China’s International Import Expo. This event will put the spotlight on China’s propensity to consumer global goods, when so often its vast export machine grabs attention. Still, the prospect of trade conflict between the world’s two largest national economies still glowers over markets.

Sure enough, the Nikkei 225 shed 1.2% in the middle of the Tokyo afternoon, with the ASX 200 off 0.2% and the Kospi down 1.5%. Chinese stocks initially held up better but they rolled over as their morning ended. The Shanghai was down 1.5% and the Hang Seng lost 2.4%.

Focus is also of course on the US Midterm Elections which will be held on Tuesday. They will be voters’ first chance to pass real verdict on Donald Trump’s Presidency and, despite a strong economic performance, polls suggests that the Democrats could do well. The week will also bring three major central bank monetary policy decisions, from the US, Australia and New Zealand.

2) Fed Rate Hike Bets, US China Trade Deal Doubts May Sink AUD/USD

Wall Street was unable to carry on gains in Asia Pacific and European benchmark stock indexes. Those were pushed higher by remarks from US President Donald Trump that he was closer towards making a trade deal with China. This crossed the wires ahead of this month’s meeting between him and China’s President Xi Jinping. The Nikkei 225 soared about 2.56% on Friday. What seemed to sour sentiment on Wall Street was a combination of two things. First, White House top Economic Adviser Larry Kudlow downplayed the notion that the two countries are on the verge of an agreement. Mr. Trump subsequently attempted to counter Mr. Kudlow’s remarks, saying that he thinks the US ‘will reach a trade deal with China’. Stocks attempted a recovery but the damage had already been one.

That is because earlier in the day we had an impressive US jobs report where average hourly earnings rose at their fastest pace since 2009. US government bond yields then staged a recovery, signaling firming Fed rate hike bets ahead of this week’s monetary policy announcement. It should also be worth noting that similar strong wage numbers preceded the global stock market selloff back in February.

The US Dollar edged cautiously higher after trimming some of its losses as a result. Pro-risk currencies such as the Australian and New Zealand Dollars pared most of their gains. Meanwhile the anti-risk Japanese Yen still finished weaker (but losses were trimmed) as the S&P 500 ended 0.63% lower. The Canadian Dollar saw some declines after local hourly earnings fell short of estimates.

As we begin the week, we may see some declines in APAC equities as regional bourses get a chance to price in stronger US wage growth data. It should also be worth noting that December 2018 Fed rate hike bets are not fully priced in yet. This leaves the Nikkei 225 and ASX 200 vulnerable should market mood deteriorate. As such, we may see the Yen outperform as AUD and NZD depreciate. How appropriate considering that AUD/USD struggled to overturn its dominant downtrend last week.

3) Crude Oil Price Drop May Stall Before US Midterm Elections

Crude Oil prices fell for a fifth consecutive day on Friday as global oversupply fears remained at the forefront. News that the US has granted eight countries sanctions waivers, allowing them to continue imports from Iran, seemed to be the catalyst du jour. Looking ahead, a light day on the economic calendar seems unlikely to drive meaningful trend development as all eyes turn to the outcome of US midterm elections on Tuesday. The baseline scenario envisions divided Congress after the votes are counted, with Democrats reclaiming a majority in the House of Representatives. That may boost the US Dollar, weighing on commodity prices by extension.

Crude Oil prices sank to a seven-month low on their way to support at 61.84. A daily close below this barrier clears the way for a challenge of the $60/bbl figure. Alternatively, a reversal back above support-turned-resistance in the 64.26-45 area targets a falling trend line at 65.73.