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 Republicans rode a wave of voter discontent to secure control of the
U.S. Senate and strengthen their grip on the House of
Representatives in a punishing blow to President Barack Obama that
will limit his power in his last two years in office.
For financial markets, the likelihood that that will curb the
legislative agenda, or alternatively ensure a greater incentive for
comprise between the two sides, was seen as positive. Similar
situations in the past have often sparked U.S. stock market rallies.
Early futures prices <ESc1> pointed to a 0.3 to 0.4 percent gain for
Wall Street when trading opens, while the dollar rose to as high as
114.59 yen <JPY=>, its highest level since December 2007.
"We all saw this result coming but the main thing is what the two
sides decide, whether they want to co-operate and compromise (on
policy) or whether they are going to go back to the trenches," said
Philip Marey a U.S.-focused economist at Rabobank.
"They (Republicans) have the incentive to be constructive to show to
voters that they can rule the country ... If they manage to
cooperate it could boost the economy, especially if things can be
done on areas like infrastructure."
Europe's main stock markets <.FTEU3> were also on the front foot,
rising 0.5-0.9 percent as some encouraging company earnings from
Britain to Sweden helped the region shake off the downbeat Chinese
purchasing managers' survey that had dominated Asian trading.[.EU]
Growth in China's services sector weakened further in October as new
business cooled, reinforcing signs of a gradual economic slowdown
that could prod the government to unveil fresh stimulus measures.
MSCI's broadest index of Asia-Pacific shares outside Japan dropped
0.5 percent, although Tokyo rose as the yen continued to weaken.
For commodities, the China data was the latest blow to the ribs.
Brent oil fell towards $80 a barrel as demand worries mounted.
Growth-attuned metal copper hit its lowest in a fortnight and
gold slid for a fifth session in six, tumbling to a four-year low
below $1,150 an ounce as a strong dollar kept investors away.
"The market is already soft for Brent and the Chinese data is not
going to help although the numbers are not a surprise," said Avtar
Sandu, senior manager for commodities at Phillip Futures of the
Chinese data.
DOLLAR REBOUNDS
It wasn't only China that was spluttering.
Euro zone data showed business growth picked up less than expected
in October despite much deeper price cutting from firms. Retail
sales were also weak and even high-flying neighbour Britain saw its
dominant services sector slow.
That meant the euro's struggles continued a day ahead of the
European Central Bank's monthly meeting. It hit a two-year low
against the Swiss franc and slid back below $1.25 against the dollar
as sterling also wilted.
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As well as bets that feeble euro zone growth and inflation will
prompt more action from the ECB in the coming months, sentiment on
the shared currency remained uncertain following a Reuters story
saying ECB President Mario Draghi's leadership style was upsetting
some of the national central banks.
"We do not expect further easing at Thursday’s ECB meeting but it
may give more insight into its new asset purchase programmes,"
strategists at Barclays said.
The dollar was last buying 114.47 yen, up 0.7 percent at a fresh
seven-year peak. The euro was worth just under $1.25.
The safe-haven appeal of U.S. Treasury notes left the benchmark
10-year yield hovering at 2.344 percent ahead of U.S. trading, while
German and other European bond markets were largely quiet ahead of
the ECB meeting.
RUSSIA RUMBLES
Russia's rouble hit a new all-time low <RUB=> as the country's
central bank finally succumbed to this year's heavy pressure on the
currency that has cost it almost $75 billion in reserves.
A big rate hike last week had failed to ease the strains so the
central bank said on Wednesday it would massively scale down its
currency market intervention, meaning the rouble's level will now
largely be determined by the market.
The continuing drop in the price of oil, which is Russia's biggest
revenue earner, remained the big pressure but signs of tensions
flaring again in Ukraine added to the strains.
Separatist leaders in east Ukraine accused President Petro
Poroshenko of violating a peace deal by suspending a law giving
their regions a "special status".
Russia meanwhile test-fired an intercontinental missile from a
submarine in the Barents Sea a day after both Moscow and Kiev had
moved troops closer to their joint border.
"The central bank of Russia has finally done it," Dmitry Polevoy,
chief Russia economist at ING Bank in Moscow said after the change
in FX intervention. "The rouble has de facto become a fully flexible
currency."
(Editing by Susan Fenton)
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