Midterms voting

The markets are in trouble That won’t change despite the results of the election

The agenda for the next Congress will be determined by Tuesday’s midterm election results. This could lead to changes in fiscal policy. Fiscal policy uses taxes and government spending as a way to influence the economy of a country.

This election is not something investors should be concerned about when it comes down to the stock market. Portfolios will be affected by the economic outlook and corporate profits more than Congress seats.

What’s going on: Markets like a divided government, which will likely lead to gridlock. This is because dividing power between Congress and the executive branches reduces the chance of broad legislation that could pose uncertainty for businesses.

Stocks face a greater problem than just who holds the House or Senate. There is the possibility of a severe recession. The market’s trajectory will depend on how severe and long-lasting that recession is.

Inflation, monetary policies, recession risk, and geopolitics are far more important drivers of equity markets moves than the possibility for small changes in US fiscal policy,” Goldman Sachs analysts wrote in a note. They also said that politics has played a smaller role in recent discussions than in previous election cycles.

They added that high levels of federal debt, rising inflation, and rising interest rates will likely outweigh any economic impact of any fiscal stimulus Congress might enact.

It’s all about Fed: Inflation is at near 40-year highs. Part of the Federal Reserve mandate is to limit price increases. The market will be most affected by monetary policy. This refers to the management of interest rates.

Christopher Smart, Barings Investment Institute, wrote in a note that “Ultimate political control may remain in the voters’ hands but for the next few decades the course of economic activity is almost entirely in their hands”

Bottom line: Investors should not look to Congress when it comes to the next major market catalyst.

The economic data that is available between now and December will determine what the Fed does next. This will be the time when the central bank holds its next policy-making meeting. The next step is Thursday’s Consumer Price Index Report, which provides important information about inflation.

Investors may be content with the final results of the midterms. Markets hate uncertainty.

Barry Gilbert and Jeffrey Buchbinder, both at LPL Financial, wrote that they expect the election’s impact to be positive. This is partly because it will have been behind them. However, “the policy impact will likely be minimal” and market participants will remain more focused on central banks and inflation.

Crypto chaos continues

On Tuesday, shockwaves swept through crypto when one of the biggest exchanges for digital currency, in the middle of a liquidity crisis that rattled digital assets and sparked contagion fear, was saved by a rival.

Binance, the largest cryptocurrency exchange in the world, announced it was buying FTX, it’s smaller competitor after the exchange failed to respond to a liquidity crisis caused by the fall in the price of Bitcoin and other currencies.

This announcement shocked crypto investors as a tie-up between two of the largest crypto exchanges in volume would signal a tectonic shift in the industry, according to Allison Morrow, my colleague.

An industry executive stated that he was shocked by the situation. “FTX’s failure… would be a Lehman Brothers event in the space. However, if they were able to bail themselves out, that would likely lead to things going in the past.

Binance and FTX did not immediately give details but noted that the two sides were still figuring out the details.

Although the news caused a temporary recovery in digital assets, it wasn’t enough for anxious investors to be calm.

According to CoinDesk, Bitcoin plunged more than 10% Tuesday, hitting a 52-week low of $17,600. FTX’s FTT, the in-house cryptocurrency, fell 85%. Coinbase and other digital assets as well as equities that are tied to the industry also dropped.

EU launches deeper investigation into Microsoft deal

My colleague Brian Fung reports that the European Union is looking into Microsoft’s $68.7billion purchase of Activision Blizzard. This deal raises concerns about the potential harm to competition in the video games industry.

According to an EU press release, a preliminary review of the deal revealed that Microsoft (MSFT), could attempt to withhold games it acquires from other distributors. Microsoft would become the third largest video game publisher in the world, with control over popular franchises like “Call of Duty” or “World of Warcraft” through its proposed acquisition.

The EU stated that such foreclosure strategies could lead to lower competition in the market for the distribution of console and PC games. This may result in higher prices, lower quality, and less innovation for console gamers, which may be passed on to consumers.

This deeper-level probe could continue through March next year. It is also motivated by concerns that the acquisition could consolidate Microsoft’s Windows operating systems at the expense of competition, should Microsoft attempt to make its PC games exclusively Windows.

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