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Canada’s main stock index opened higher on Tuesday, driven by gains in shares of energy and material companies.

The Toronto Stock Exchange’s S&P/TSX Composite index was up 31.89 points, or 0.21 per cent, at 15,249.59.

U.S. stocks opened flat on Tuesday as investors awaited the outcome of U.S. midterm elections that could shape the future of Donald Trump’s presidency and test his tax and trade policies.

The Dow Jones Industrial Average fell 8.87 points, or 0.03 per cent, at the open to 25,452.83. The S&P 500 opened higher by 0.09 points, or 0.00 per cent, at 2,738.40. The Nasdaq Composite dropped 2.78 points, or 0.04 per cent, to 7,326.07 at the opening bell

The cautious mood set in as investors broadly braced for opposition Democrats to take over the House of Representatives and Trump’s Republican Party to retain the Senate.

A political gridlock between the White House and Congress could hinder Trump’s pro-business agenda and raise concerns about political instability, but most analysts say this may not be the worst outcome for equities.

There are fears that there could be a sharp selloff in the market if the Democrats sweep both the House and the Senate. In contrast, stocks may rally on hopes of more tax cuts if Republicans retain control of the House.

“You haven’t seen any huge de-risking or risk-taking in anticipation of the outcome. It shows that the market is prepared for the base outcome, which is a split Congress,” said John Swarr, investment specialist at Penn Mutual Asset Management.

“There’s not much chance of a new policy surprising to the upside or the downside with a split Congress. But markets might like that especially after the recent volatility we had in October.”

A confluence of factors including rising U.S. interest rates, global trade disputes and worries about corporate profit growth had set off a rout in global stock markets in October, with the S&P 500 locking its worst month in seven years.

Investors are also looking for signs of a let-up in the U.S.-China trade dispute, with both countries expected to hold top-level diplomatic and security talks in Washington on Friday.

Chinese Vice President Wang Qishan said on Tuesday China was ready to hold discussions and work with the United States to resolve trade disputes.

Despite an Apple-led weakness in technology stocks on Monday, the S&P 500 ended half a percent higher as investors bought defensive stocks such as real estate, consumer staples and utilities.

Among stocks, Mylan NV jumped 11.8 per cent in early trading after the drugmaker beat analysts’ estimates for third-quarter profit.

European shares sagged and the dollar and bond markets barely budged on Tuesday, as traders braced for midterm elections in the United States and potentially lively sessions ahead.

Japan and Hong Kong had helped Asia overcome another Chinese wobble, but Europe was in the 0.4 per cent red as investors pounced on corporate earnings misses.

With so much at stake, currency market moves were extremely tight. The dollar hardly moved against the euro, lost ground to Brexit-bound sterling but made some back against the yen as dealers kept their options open.

“It is definitely not the time to buy the dip,” said London & Capital’s Chief Investment Officer Pau Morilla-Giner, referring to U.S. and globally-focused stock markets and risk assets.

“Everything that could go well for U.S. consumers in the last couple of years has gone well, but now the tide is turning... At the moment you are running out of drivers of growth in the U.S.”

There was plenty for investors to digest from Europe too.

Italian and Spanish stocks and bonds weakened as updated PMI figures confirmed euro zone business growth had fallen to a two-year low last month against the backdrop of trade tensions.

The future output index caused even more concern as it fell to a near four-year low.

“Euro zone companies reported a disappointing start to the fourth quarter,” said Chris Williamson, chief business economist at IHS Markit, which compiles the data.

Italian politics also played on the nerves too after euro zone finance ministers had called on Rome to change its budget at a meeting late on Monday.

With Italy unlikely to bow to the demands any time soon, it pointed to a further escalation in the damaging feud and pushed Italian borrowing costs up 5-7 basis points on the day.

“Twenty-five countries have entered into the excessive deficit procedure and no-one has ever got a fine, so my gut feeling is that they (Italy) won’t get one, just a slap on the wrist,” said Lyn Graham-Taylor, strategist at Rabobank.

The uncertainty over the U.S. midterms for U.S. stocks futures was understandable. The S&P 500 has risen 28 per cent since Trump’s election in November, 2016, which is more than under any other president in the past 64 years.

MSCI’s broadest index of Asia-Pacific shares ex-Japan had edged up 0.4 per cent overnight following a positive finish for Wall Street on Monday.

Japan’s Nikkei also climbed 1.1 per cent, although weaker Chinese markets and regional technology shares capped the region.

Apple suppliers such as Taiwan’s Hon Hai Precision Industry were hit by a report that Apple had told its smartphone assemblers to halt plans for additional production lines dedicated to the iPhone XR. The report had also driven Apple shares 2.8 percent lower in U.S. trade.

While political gridlock between the White House and Congress could hinder Trump’s pro-business agenda and raise concerns about U.S. political instability, some analysts say this may have already been priced in by investors.

The Cboe Skew index, also known as the “black swan” index, hovered not far from its 2-1/2-year low hit on Friday, indicating demand for options that provide protection remains tepid.

A higher skew typically indicates investors are buying more protection on heightened anxiety.

“Unlike the U.S. Presidential election or the U.K.’s Brexit referendum, the upcoming U.S. (midterm) elections are not a binary event,” said Yasuo Sakuma, chief investment officer at Libra Investments.

“So it’s unlikely to send stocks significantly in one direction, apart from initial quick reactions.”

Safe-haven gold was little changed but in oil markets crude prices were down near multi-month lows after the United States allowed eight countries to continue buying oil from Iran temporarily, easing the likelihood of a sharp supply drop.

U.S. West Texas Intermediate (WTI) crude futures slipped 0.5 per cent to $62.80 a barrel, after hitting a seven-month low of $62.52 on Monday.

Brent crude futures dropped 0.6 per cent to $72.74 a barrel, near Friday’s 2-1/2-month low of $72.16.

Both oil benchmarks have slid more than 15 per cent since hitting four-year highs in early October.

Reuters

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