February 2, 2023

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Asian equities mixed as market awaits voting results and price data

Asian equities were mixed on Wednesday as investors awaited the outcome of the US midterm elections and a key inflation update later in the week.

Tokyo’s Nikkei 225 Index slipped 0.2% and Hong Kong’s Hang Seng also slipped 0.2% to 16,517.04. The Shanghai Composite Index rose 0.1% to 3,066.99, while the S&P/ASX 200 rose 0.7% to 7,006.70 in Sydney.

Seoul’s kospi rose 1% to 2,424.02.

All eyes were on the election, which could determine how much gets done in Washington and possibly beyond over the next few years. Markets tend to abhor uncertainty.

With Americans heading to the polls amid high inflation and concerns about a possible recession across the country, analysts say investors appear to be betting that Republicans will gain control of at least one house of Congress. That, coupled with a Democratic White House, could result in little action being taken in Washington, which may be bad for society but could also perpetuate the status quo on economic policy.

Trading on Wall Street was timid all day, with Wall Street’s benchmark index oscillating between an even bigger gain and a modest loss in the afternoon.

The S&P 500 was up 0.6% to 3,828.11, while the Dow Jones Industrial Average was up 1% to 33,160.83 and the Nasdaq Composite was up 0.5% to 10,616.20.

If Republicans end up at least gaining control of the House of Representatives, the ensuing reaction in financial markets could be modest, economists at Goldman Sachs say. Stocks have already rallied in anticipation, with two straight gains of at least 1% before election day. However, a surprise Democratic win could upset the market if investors anticipate higher corporate taxes and other policy changes.

But a Republican victory could also mean less help from Congress during a potential recession than under a Democrat-controlled Congress. And economists are forecasting a sharp downturn in the coming months as interest rate hikes to tame inflation will slow business activity and spending.

The key milestone for markets this week after US election day could be Thursday’s report on inflation, which will impact the rapid rate hikes the Federal Reserve is imposing to keep them under control.

By raising interest rates, the Fed intentionally slows the economy by making it more expensive to borrow money. High interest rates also tend to depress the prices of stocks and other assets while increasing the risk of a recession.

The Fed has already raised its federal funds rate to a range of 3.75% to 4% from virtually zero in March, and more investors are expecting it to be above 5% next year.

A weaker-than-expected read on Thursday could give the Fed scope to ease slightly. Economists expect the report to show continued moderation from a peak set in the summer. But a worse than expected reading could have the opposite effect.

Stocks are also moving on corporate earnings reports as the earnings season draws to a close. Take-Two Interactive fell 13.7% after reporting weaker-than-expected results for the most recent quarter.

Shares of companies intertwined with the cryptocurrency economy also fell sharply, with Coinbase Global down 10.8% and Robinhood Markets down 19%.

They fell with crypto prices after the world’s largest crypto exchange by daily volume, Binance, said it intends to buy one of its bigger rivals, FTX.

Binance is making the purchase to help FTX weather a crisis that has seen users withdraw funds fearing for their financial clout. It’s the latest crisis of confidence to hit the crypto industry this year, as prices have plummeted in part on worries about higher interest rates.

Bitcoin dipped below $17,500 at one point before falling back to $18,267, down 12.2% from the previous day, according to CoinDesk.

For the other day of trading on Wednesday, the US benchmark crude fell 19 cents to $88.72 a barrel in electronic trading on the New York Mercantile Exchange.

Brent crude, the international price standard, fell 9 cents to $95.27 a barrel in London.

The dollar slipped from 145.34 yen to 145.31 Japanese yen. The euro rose to $1.0082 from $1.0074.

Credit: AP/Lee Jinman