Big CPI impact and U.S. midterm elections
Hello, this is Geppa Shimoyama.
On the 10th and 11th last week, the U.S. stock markets
saw a significant rise in stock prices.
On the New York stock market on the 10th
the Dow Jones Industrial Average closed
higher by
$1,201.43 from the previous day,
$33,715.37.
The Nasdaq Composite also showed
a substantial rise of 7.3%.
Following that, on the 11th,
the Tokyo stock market
advanced across the board,
with the Nikkei stock average
rising by more than 800 yen at one point,
and
recovering to the 28,000 yen level
for the first time in about two months.
In the following day,
the U.S. markets continued their momentum from the previous day,
notably the S&P 500 index
up 0.9% from the previous day,
to $3,992.93,
and on a weekly basis
the best performance since June.
The Dow Jones Industrial Average rose by 32.49 points (0.1%),
reaching 33,747.86,
and the Nasdaq Composite also increased by 1.9%,
marking a two-year high on a weekly basis.
Additionally, in the foreign exchange market,
the dollar weakened sharply on the 10th,
and the yen rose
by as much as 7 yen over the two days from the 10th to the 11th,
with both the magnitude and rate of increase
unseen since October 1998,
in the last 24 years.
On the other hand, as risk assets,
cryptocurrencies which had previously correlated with stock prices
fell sharply due to the collapse of FTX,
and led to a broad decline across financial markets,
making this a week of significant events in
various financial markets.
The immediate trigger for the stock surge this time was
the release on the 10th of the U.S. CPI (Consumer Price Index).
So why did this CPI report have such an impact?
And what might be the future direction of the stock market?
This time, we will review last week’s CPI and U.S. midterm elections,
and discuss the potential impact of the results starting today
on the stock market.
＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝
CPI review
＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝
Now, let's look back at the CPI report that had a major impact on the financial markets.
On the 10th, the U.S. Department of Labor released last month’s CPI,
and compared to the same month last year,
it rose 7.7%, notably below the market expectation of 7.9%.
The pace of increase slowed from 8.2% in the prior month,
marking the first time in eight months this year
that the CPI fell below 8%.
Additionally, excluding highly volatile food and energy,
the core CPI rose 6.3% year over year,
which was slower than the prior month.
As a result, markets began to anticipate that the persistent inflation might be easing,
leading to expectations that the next FOMC meeting would not require a 75 basis point rate hike,
and that a 50 basis point hike might be sufficient,
with a broader sense of easing in rate hikes spreading across financial markets.
＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝
Review of the midterms
＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝
Turning to the U.S. midterm elections,
attention focused on the number of seats in the House of Representatives and the Senate.
In the House,
pre-election forecasts suggested the Republican Party would be ahead,
but as predicted, the Republicans appeared likely to gain a majority,
while the Senate outcome looked to favor the Democrats,
potentially giving them the majority.
What about the market impact?
As a post-midterm anomaly, and given the CPI data,
the market sentiment is likely to be supportive of equities,
with expectations for less aggressive rate hikes contributing to a rally.
＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝
Outlook for future stock market movements
＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝
Going forward, the broad trend suggests that until the December FOMC meeting,
with no major economic events or data releases to justify further rate hikes,
the upward trend is likely to continue as long as there is no new information prompting a rate increase.
However, ahead of Thanksgiving on November 24, activity by institutional investors may wind down temporarily.
Therefore, at some point in this uptrend there may be profit-taking or a notable correction,
and traders should keep that possibility in mind.
＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝
Summary
＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝
November is already half over, and once Thanksgiving passes,
markets will start winding down ahead of the year-end earnings and Christmas holidays.
In particular, the upcoming FOMC meeting on December 13 and 14
will determine the final trajectory of the stock market this year.
In the stock market, as January’s anomaly would suggest,
2022 had a continuing downtrend in January,
but the outlook could shift in the last two months of the year.
We will continue to bring you the latest news and stock market trends in this newsletter.
At the same time, we would like readers to be prepared for all contingencies by managing positions carefully.
Please watch your position balance.
Thank you for reading until the end today.
Thank you.
Disclaimer
We strive to ensure that the contents of this newsletter are accurate and up-to-date,
but we cannot be held responsible for any losses arising from the information herein.
Please understand.
End of message.