Chinese foreign trade data for October, released on Monday, had dovish implications for the broad market as both imports and exports didn’t live up to growth expectations, with a declining YoY (-0.3% exports, -0.7% imports). Both indicators have been declining for several months in a row:

So far, the reaction to the data was set aside as the focus of investors is on two key events in the US – the midterm elections for Congress and the October CPI release.

The daily increase in Covid cases in China amounted to 7,000, a maximum of six months: negative news for the risk appetite. Since the market has been trading unconfirmed messages about the easing of coronavirus restrictions in China over the past few days, it is fairly possible that traders may prefer to dial back those expectations by selling risk assets and, in particular, shorting oil, which has shown its sensitivity to those rumors. Since the beginning of October, Brent quotes have added about $8 per barrel, running into resistance at $94 per barrel, the October high.

Goldman has said earlier that risks to oil prices are skewed to the upside as global reserves are depleted and spare capacity to increase production is limited. In general, the supply side sends positive signals for price growth, while the signals from the demand side continue to act as a deterrent to growth. Key among those is the China’s strategy to tackling the Covidthreat.

The overall market trend is moderately positive: Monday turned out to be a positive day for risk US assets, S&P 500 futures continued to rise on Tuesday, there is a slight upturn on European stock exchanges. Treasury yields nudged lower on US elections uncertainty. 

The market held its breath ahead of results of the midterm elections in the US. Their importance to the market is due to the fact that if the Republicans win a majority in the lower and upper house, the Biden administration will face great difficulties in carrying out its agenda. However, Senate bills could also meet  resistance from the executive branch of the government, resulting in a situation known as a split government. With this outcome, the likelihood of new US fiscal stimulus will decrease, something that has historically been negative for the dollar and positive for risk assets, as the political deadlock in some way removes uncertainty for investors, as large-scale changes in US policy will be difficult. Polls and asset returns show that the market is increasingly leaning towards an outcome where the Republicans will gain control of the Senate.

As for the dollar, from a technical point of view, the US currency index is consolidating near the key ascending trend line on the weekly timeframe, a breakdown and consolidation below the line may be a signal for further sell-off: