Australia

Australian shares are set to edge higher after major US stock averages came off their lows heading into the last hour of trading Tuesday. The S&P 500 and Nasdaq Composite clawed back into positive territory.

ASX futures were up 32 points or 0.4% at 6988 as of 7:00am on Wednesday, pointing to a gain at the open.

Investors' optimism had built ahead of the midterms, which could see a shift in the control of Congress and offer signals about the next presidential race. The Democrats' narrow control of both chambers is up for grabs. Nonpartisan analysts are projecting Republicans will take control of the House of Representatives, leading to a divided government and potentially limiting the scope of the Biden administration's legislative plans.

Such an outcome is typically considered a boon for stock markets as it limits uncertainty and reins in both parties, investors say. "It tends to make the electoral body much less effective in terms of implementing big changes and it tends to force the policy agenda much more toward the center," said Charles Diebel, head of fixed income at Mediolanum International Funds.

In commodity markets, Brent crude oil fell 2.4% to $US95.57 a barrel, gold jumped 2.1% to US$1,711.76.

In local bond markets, the yield on Australian 2 Year government bonds rose to 3.39% while the 10 Year rose to 4.03%. Overseas, the yield on 2 Year US Treasury notes rose to 4.67% and the yield on the 10 Year US Treasury notes was up at 4.12%.

The Australian dollar hit 64.96 US cents down from the previous close of 64.79. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged down to 102.04.

Asia

Chinese stocks ended lower after gaining for two sessions, dragged by the consumption sector and new energy vehicles stocks. Investors were also awaiting a clearer signal from Beijing on fine-tuning the country's zero-Covid policy. Foshan Haitian Flavouring & Food Co. dropped 2.6% and Index heavyweight Kweichow Moutai fell 1.5%. However, software companies and property stocks outperformed the market, with China Merchants Shekou Industrial Zone Holdings rising 2.1%. The Shanghai Composite Index closed 0.4% lower at 3064.49, the Shenzhen Composite Index declined 0.4% and the ChiNext Price Index ended 0.9% lower.

Hong Kong's Hang Seng Index gains 0.6% to 16698.65 in early trade, tracking Wall Street's rise overnight. Investors continue to weigh the prospect of Beijing eventually easing its strict Covid policy. Gains by casino stocks and oil majors are offsetting losses among some Chinese technology shares. Alibaba Group is down 2.5% and Tencent Holdings loses 0.9%. Sands China tops the gainers with a 4.1% rise and Galaxy Entertainment climbs 2.2%, while PetroChina and Cnooc are up 1.5% and 0.6%, respectively. Logan Group falls 12% after becoming the latest Chinese property developer to receive a winding-up petition. Geely Auto rises 2.6% after data showing a 36% rise in October sales volume.

Japan's Nikkei Stock Average rose 1.25% to close at 27872.11 amid broad-based gains. Markets seem to be focusing on the US midterm elections later today and the US CPI data due on Thursday, says Stephen Innes, managing partner of SPI Asset Management. Yamaha Motor surged 12.8% after it boosted revenue and net-profit views for 2022 and Shimadzu rose 6.3% after its first-half net profit climbed 20% on year.

Europe

European stocks rose as investors eye the potential implications of Tuesday's US midterm elections. The pan-European Stoxx Europe 600 gained 0.8%, the French CAC 40 advanced 0.4% and the German DAX jumped 1.1%, with gains for semiconductor and retail shares offsetting losses for oil, automotive and aerospace stocks.

"Since World War II, the US stock market has done best, on average, in the third year of a presidential term," said AJ Bell investment director Russ Mould, adding that investors will be hoping a more dovish US Federal Reserve and government economic pump-priming will fuel solid equity gains in 2023.

In London, the FTSE 100 closed Tuesday up 0.08%, below the larger gains seen by fellow European markets as oil companies and house builders acted as a drag on other, predominantly positive sectors. Most global markets saw a boost as a weaker US dollar and lower yields pushed equities higher, but among the FTSE 100, BP PLC and Shell PLC dipped 3.2% and 2.5% respectively as Brent crude prices slip back, CMC Markets UK chief market analyst Michael Hewson said. Elsewhere in the index, housing stocks took a hit after Persimmon PLC's latest statement showed that U.K. economic uncertainty was starting to hit its sales numbers and push up cancellation rates, Hewson said.

North America

Investors' optimism had built ahead of the midterms, which could see a shift in the control of Congress and offer signals about the next presidential race. The Democrats' narrow control of both chambers is up for grabs. Nonpartisan analysts are projecting Republicans will take control of the House of Representatives, leading to a divided government and potentially limiting the scope of the Biden administration's legislative plans.

Such an outcome is typically considered a boon for stock markets as it limits uncertainty and reins in both parties, investors say. "It tends to make the electoral body much less effective in terms of implementing big changes and it tends to force the policy agenda much more toward the center," said Charles Diebel, head of fixed income at Mediolanum International Funds.

The year after the midterms tends to see the highest equity returns of a president's first four years in office, as divided governments tend to make for predictable politics, said Elliot Hentov, head of macro policy at State Street Global Advisors, in a note. The S&P 500 has been higher a year after every midterm since World War II, according to analysts at Deutsche Bank.

"It's no exaggeration to say that midterm elections are one of the best historic buy signals for equities we have," said Jim Reid, Deutsche Bank's global head of credit strategy, in a note.

Still, investors caution that any boost to optimism will be limited, as the Federal Reserve follows its path of raising interest rates to bring soaring inflation under control and the global economy slows. Corporate earnings are also expected to suffer.

Unless there is some very unusual result to the congressional elections, investors will quickly turn their attention to Thursday morning's inflation report and its implications for Fed policy, analysts said. "That's going to have a much larger effect on sentiment as opposed to the election," said Paul Nolte, a partner at wealth manager Kingsview Partners.

In commodity markets, oil prices fell as hopes faded that China was considering easing its strict Covid-19 policies soon. US crude oil weakened for a second day, falling 2.7% to $89.32 a barrel.

Commodities and Chinese stocks had risen as social media rumors suggested Beijing was considering relaxing its zero-Covid policies sooner than expected. But officials have pushed back on such rumors, damping investors' hopes. Beijing is considering such a move but is progressing cautiously and has set no timeline for reopening its economy, The Wall Street Journal reported.

"For the global outlook, China reopening would be a big deal were it to happen. But with China, you have to know who to listen to. Often the rumor catches fire but doesn't have any grounding in reality," Mr. Diebel said.

In corporate news, shares of Take-Two fell 15% after the game publisher cut its fiscal-year outlook, citing shifts in the company's pipeline, fluctuations in foreign-exchange rates and a more cautious view of the economy.

Lyft shares fell 25% after the ride-sharing company said its revenue growth slowed and the number of people using its service remained below prepandemic levels.

Shares of Lordstown Motors fell 8%, after it posted a wider quarterly loss. Shares had initially gained after Foxconn Technology, the world's biggest contract manufacturer for electronics, said it was deepening its investment in the once-troubled EV startup.

A spat between two of the richest people in digital currencies spilled over into crypto markets Tuesday. Crypto exchange Binance surprised markets Tuesday when it said it signed a letter of intent to acquire rival FTX Trading, and said that FTX was facing a liquidity crunch. Bitcoin was down 9.6% from its Monday 5 p.m. ET level to $18,684.