ChiNext Index fell below 2400
A shares and Hong Kong stock After experiencing a violent rebound last week, the first three trading days of this week were somewhat disappointed. Shanghai Composite Index and ChiNext Index both fell below the 5-day line. Foreign capital sold continuously this week. The turnover of in the two markets continued to shrink , and today it fell below 800 billion. Market trading sentiment has cooled down, and the sector rotated faster, and the funds were a little cautious.
We believe that there are two main reasons:
First, the fundamentals of domestic macroeconomic have deteriorated recently. Recently, the number of new confirmed and asymptomatic cases has increased rapidly. Yesterday, 1,294 new local cases and 6,882 new asymptomatic cases. Due to recent public opinion, the policy may be in a dilemma, which may have a certain impact on the winter consumption scenario. In addition, export data released this week showed that exports denominated in US dollars showed negative growth for the first time in October, mainly due to the contraction of demand brought about by the economic recession in Europe and the United States, and both domestic and foreign demand showed pressure.
Secondly, with the emergence of domestic and external demand pressure, game policies will become an important direction. That is to say, the market is waiting for policies. Before the policy is finalized, the market lacks strong expectations and main lines, so it falls into internal friction of sector rotation. In addition, the US midterm elections are in progress. On Thursday, the central bank will release the social financing data for October. The United States will release the CPI data for October. Before the important events are implemented, there is a strong wait-and-see sentiment for funds.
Specifically, as of the closing, the Shanghai Composite Index fell by 0.53%, the ChiNext Index fell by 1.36%, and the Science and Technology Innovation 50 fell by 1.35%. The turnover of the two markets fell to 0.77 trillion yuan, and northbound funds sold slightly by 684 million yuan. The bad news is that northbound funds sold net for three consecutive days, and the good news is that the sales volume has dropped significantly today.
US midterm elections
US midterm elections entered the final election stage yesterday (November 8). If the votes in each state do not receive the same votes, the results of the midterm elections can be obtained as soon as possible after the voting date, and the latest will be concluded after the likely Louisiana runoff election on December 10.
Currently, Biden Democratic Party occupying both the Senate and the House of Representatives, but has been greatly challenged in the midterm elections. The Democrats now hold 50 seats in the Senate, which is on par with Republican , with 14 seats participating in this year's re-election, while the Republicans have 21 seats participating. The Democrats occupy 220 seats in the House, which forms a majority advantage over the Republican 212 seats (three of which are vacant).
The focus of the market is now on whether the Republican Party can sweep the two houses after the midterm elections, or whether the Democrats and Republicans occupy the one house respectively, or the status quo, the Democrats still occupy the two houses.
According to historical data, midterm elections often have reversals, and the ruling party often fails. In the 22 midterm elections between 1934 and 2018, the presidential party lost an average of 28 House seats and 4 Senate seats. This may be because the ruling party is always unable to fulfill its campaign promises, which makes voters dissatisfied.
According to Gallup statistics, the average approval rating of current US President Biden in his seventh quarter (July 20 to October 19) was 42%. According to forecasts, Republicans have a 54% chance of controlling both houses, while Democrats have a 15% chance of controlling both houses, and Democrats have a 31% chance of controlling the Senate and Republicans have a 31% chance of controlling the House. The suspense of bipartisan competition is mainly concentrated on control of the Senate.
Due to different voter bases, the Democratic Party pays more attention to the development of emerging industries such as re-energy and new materials, while the Republican Party pays more attention to the protection of industrial interests of traditional fossil energy and traditional manufacturing industries. If the Republicans win, the Biden administration's new energy policies and fiscal stimulus, including the US Inflation Act, may be restricted.
After understanding the basic background, let’s look at the impact of the US midterm election on global stock markets. It is mainly divided into three situations:
The first situation is to maintain the status quo, that is, the Democrats control the Senate, but the market expectations have not changed. Still follow the current path, the Federal Reserve continues to raise interest rates in , and fiscal stimulus such as new energy continues, and at the same time, increase fiscal revenue by raising corporate taxes and rich taxes.
The second situation is that the Republicans win the House of Representatives, the Democrats control the Senate, and the two parties are in a state of confrontation. In this case, the Republican Party will obstruct the Democratic Party’s policies, the Biden administration’s fiscal stimulus policy may be limited, the risk of a hard landing in the United States increases, and the US dollar may peak and fall.
The third situation is that the Republican Party swept the two houses, and the Republican Party plans to promote the expansion of traditional energy production in the United States to improve the competitiveness of the United States' energy, promote the mining of oil and gas, key minerals and hydropower. The Biden administration's fiscal stimulus policy is not conducive to reducing US inflation. It is different from the Federal Reserve's monetary policy. If fiscal stimulus policy is restricted, US inflation may be easier, and the Federal Reserve's interest rate hike may be more dove.
Risk warning:
stock market is risky, so investing should be cautious. This article does not constitute investment advice, and readers need to think independently.
