Investors returned to gold amid uncertainty over the distribution of power in the United States

Preliminary results of the US congressional elections show a significant Republican lead, which means the US is close to a government split, likely derailing the Democrats’ big spending plans on social issues. This could lead to a rise in the dollar index, as the new Congress will want to deal with inflation more quickly and push the US Federal Reserve to raise interest rates even more aggressively. Republicans are willing to accept a recession, but only if it is quick.

Sustained growth in German bond yields weakened the dollar amid expectations of further tightening of the European Central Bank policy, which led to a reduction in the spread with Treasury yields. Bank of Germany Governor Joachim Nagel said Tuesday that the ECB should not “give up too soon” and should keep raising rates even if it hurts growth. ECB Governing Council spokesman Pierre Wunsch pointed out yesterday that the European Central Bank may need to raise interest rates more than investors expect. The ECB’s monetary policy response will ultimately depend on the severity of the coming economic slowdown. Therefore, it is important for investors to gauge the performance of the region’s economy, especially GDP.

Gold prices jumped to a one-month high on Wednesday thanks to renewed demand for safe-haven assets and a weaker dollar due to uncertainty over the outcome of the US midterm elections.

Oil prices fell yesterday as industry data showed that US crude inventories rose more than expected. There are also growing concerns that the recovery of COVID-19 cases in the largest importer, China, will hurt demand for fuel. Last week, the oil market had pinned hopes that China might move to ease restrictions related to COVID, but officials said over the weekend that they would stick to their approach.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) gained 1.25%, Hong Kong’s Hang Seng (HK50) decreased by 0.23%, and Australia’s S&P/ASX 200 (AU200) added 0.36% by the end of the day.

China’s consumer price index was 2.1% y/y in October (forecast 2.4%). The producer price index was 1.3% y/y (forecast 1.5%). The slowdown in China also does not bode well for broader Asian markets, given the country’s role as a major trading hub. Sentiment toward China worsened this week after authorities said Beijing has no plans to roll back its strict zero COVID policy.