What is happening: Markets tend to like divided governments which will likely lead to gridlock. Indeed, the division of power in Congress or between Congress and the executive reduces the likelihood of sweeping legislation that could present uncertainty for business.

But stocks have a bigger problem than who takes the House or the Senate: the possibility of a coming recession. And its depth and duration will determine the trajectory of the markets.

“Inflation, monetary policy, recession risk, and geopolitics have been far more important drivers of stock market moves than the potential for modest shifts in U.S. fiscal policy,” Goldman Sachs analysts wrote in a statement. note. Politics has taken a less central role in recent discussions with investors than in previous election cycles, they added.

High levels of federal debt, inflation and rising interest rates will likely outweigh the economic impact of any potential fiscal stimulus Congress might enact, they added.

It’s all about the Fed: Inflation remains near 40-year highs, and part of the Federal Reserve’s mandate is to control price increases. It is monetary policy, which encompasses the management of interest rates, that will matter most to the market.

“Ultimate political power may remain in the hands of voters, but for the next few years the course of the economy is almost entirely in the hands of the Fed and its blunt tools to tame inflation and support the economy. job,” Christopher Smart of the Barings Investment Institute wrote in a note.

The bottom line: When it comes to the next big market catalyst, investors should look to the Fed, not Congress.

And what the Fed does next will likely be determined by economic data released by December, when the central bank holds its next policy meeting. Next up is Thursday’s report on the Consumer Price Index, an important gauge of inflation.

As for intermediaries, investors can just be satisfied when the results are final. The market hates uncertainty.

“We expect the impact of the election to tip the market positive, in part because we will have it behind us,” wrote Barry Gilbert and Jeffrey Buchbinder of LPL Financial. But “the policy impact is likely to be small and market participants will continue to focus more on central bank policy and inflation.”

The Crypto Mayhem Continues

Shockwaves rocked the crypto world on Tuesday when one of the biggest digital currency exchanges, amid a liquidity crunch that has rocked digital assets and sparked fears of contagion, was bailed out by a rival purse.

Binance, the world’s largest cryptocurrency exchange, said it was buying its smaller rival FTX, after the exchange struggled to respond to a liquidity race spurred by falling Bitcoin prices and other currencies.

The announcement stunned crypto investors, as a tie-up between the two largest crypto exchanges by volume would mark a tectonic power shift in the industry, reports my colleague Allison Morrow.

“I’m really shocked by this,” an industry executive told CNN Business. “The failure of FTX…would be a bit like a Lehman Brothers event for space. But if they were successfully bailed out, that would probably prevent things from happening.”

Binance and FTX did not immediately provide details on the deal and noted that both parties are finding out in real time.

The news prompted a brief rally in digital assets, but was not enough to calm anxious investors.

Bitcoin fell more than 10% on Tuesday to hit a 52-week low around $17,600, according to CoinDesk. FTX’s internal coin, FTT, cratered, losing 85% of its value. Other industry-related digital assets and stocks, such as Coinbase, also fell.

EU opens further investigation into Microsoft deal

The European Union is taking a closer look at Microsoft’s proposed $68.7 billion takeover of video game giant Activision Blizzard, over concerns the deal could harm competition in the video game industry, reports my colleague Brian fung.
A preliminary review of the deal revealed that Microsoft (MSFT) may try to withhold games it acquires from other distributors, according to an EU press release. The proposed acquisition would see Microsoft become the world’s third largest video game publisher, controlling popular franchises such as “Call of Duty” and “World of Warcraft”.

“Such foreclosure strategies could reduce competition in console and PC video game distribution markets, leading to higher prices, lower quality and less innovation for console game distributors, which could in turn be passed on to consumers,” the EU said.

The deeper investigation, which could continue until March next year, is also motivated by concerns that the acquisition could consolidate the power of Microsoft’s Windows operating system at the expense of the competition, if Microsoft attempts to make its PC games exclusive to Windows.