Asian equities could trade choppily ahead of US Midterm elections and a risk-off price action after a dump on crypto assets, with Bitcoin making a year low in the wake of Binance’s acquisition of FTX. That resulted in clear defensive trade as stocks sold off and the USD pared its weakness. The deleverage from crypto assets could reverberate on Asia trade and hit crypto-related stocks.
On the macro front, Oil price action and value stocks should be on the radar as it took a hit after rises in China’s COVID infections clouded the demand and recent economic reopening positiveness. The Haizhu district of Guangzhou is to extend COVID restrictions until November 11th. On the Midterms, participants see the results augur badly for President Biden as polls predict a Republican win in the House and a tight Senate battle that tilted away from the Democrats. Inflation and the economy have been the one of, if not the main concern among the electorate; Bank of America suggests that if the Republicans win, it will signal that the electorate wants low inflation. Traders are also suggesting that a Republican win would also lead to tighter monetary policy, and for the yield curve to invert further, a Democratic victory would probably result in more flexible fiscal policy and a steeper yield curve. With that on the playbook, the key asset to watch will be the US short-term and Treasury curves that could ultimately drive flows on risk assets due to yield curve differentials and duration sensitivity.
