Futures were 39 points or 0.56% higher at 6975 as of 7am AEDT on Tuesday, suggesting a rise at the open.

The Dow Jones Industrial Average was up 1.4% as of 3:30 p.m. Eastern time. The S&P 500 rose 1 percent, as did the technology-heavy Nasdaq Composite.

For the remainder of the week, traders are zeroed in on Tuesday’s midterm elections and inflation figures for October due Thursday. Economists expect a widely anticipated report to show that consumer prices rose at an annual pace of 7.9 percent in November, down from 8.2 percent a month before. Corporate earnings are also on tap from companies including Lyft which is scheduled to report after markets close on Monday Walt Disney, Occidental Petroleum and Adidas.

Investors say they are on guard for the potential that the results of Tuesday’s elections could lift the stock market, particularly if Republicans take control of the House of Representatives, a prospect that nonpartisan analysts are predicting. That would result in a divided U.S. government, something some investors favor because it minimizes policy uncertainty.

But this year, investors and strategists say a boost from the elections, to the extent one materializes, would probably be overshadowed by interest rate expectations, corporate results and economic data. “Across the market these days, what matters much more is expectations of central bank action, over and above the next political sound bite,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers.

In other markets, Brent crude oil lost 0.6 percent to $US97.99 and gold weakened 0.35 percent to US$1,676.04.

Local Bond Markets

Australian 2 Years government bond yields increased to 3.26% and the 10 Years yield is higher at 3.90%. Meanwhile, in overseas trade, the yield on 2 Year US Treasury notes firmed to 4.72% and that for 10 Year US Treasury notes edged up to 4.21%.

The Australian dollar was buying 64.78 US cents, compared to Thursday’s close of 64.64. The Wall Street Journal Dollar Index, which measures the U.S. currency against 16 others slipped to 102.42.

Asia

Shares in China rebounded from opening losses to close higher, adding to a rally since last week that was set off by the reopening hopes despite rising Covid cases and officials reiterating their strict Covid policy stance. The energy and retail sectors led the market higher. The Shanghai Composite Index added 0.2% to 3077.82, the Shenzhen Composite Index gained 0.4% and the ChiNext Price Index was up 0.1%.

Stocks in Hong Kong finished higher, adding to a rally that began on Friday on market talk of a possible easing of China’s strict zero-Covid policy. The benchmark Hang Seng Index gained 2.7% and finished at 16595.91, its highest closing level in three weeks. The gains were led by Chinese developers. Country Garden rose 11%, Times China added 16% and CIFI gained 16%.

Japanese shares closed higher, with electronics and trading firms leading the rally, after U.S. jobs data on Friday left expectations for the Fed’s gradual tightening in place. Sumitomo Corp. rose 4.8% and Tokyo Electron Ltd. added 3.8%. Teijin, TNJHY -9.94% meanwhile, lost 9.3% after slashing its fiscal-year net-profit view. The Nikkei Stock Average rose 1.2% to 27527.64.

Europe

European shares closed mixed on the day. The pan-European STOXX Europe 600 Index was up 0.33% at 418.34, Germany's DAX rose 0.55% to 13,533.52, and France's CAC 40 Index was little changed at 6416.61.

In London, the FTSE 100 ended the day 0.48 percent lower in a subdued start to the week, reversing early gains on hopes that China might start to ease restrictions on the Wuhan provincial region where the outbreak started to take hold and replace it with a realization that any reopening would be a long time coming. The index's underperformance was largely due to health tech retreats, with GSK saying its Blenrep blood cancer drug trial missed a key goal, said Michael Hewson, chief market analyst at CMC Markets UK in a market commentary.

“This was the second piece of bad news in the course of a month after last month’s failure of its rheumatoid arthritis drug Otilimab, and has seen the shares dive sharply from a short term peak on May 27.” There is also some conservative positioning in this context as investors look to tomorrow's US midterm elections and the upcoming CPI report later in the week, Hewson added.

North America

The S&P 500 rose in afternoon trading on Monday, the start of what was expected to be a busy week of corporate earnings, inflation data and midterm elections that could result in a change of control of one or both chambers of Congress to Republican hands.

This week, traders are looking ahead to Tuesday’s midterm elections as well as Thursday’s inflation data for October. The closely watched report is expected to indicate that consumer prices rose at an annual rate of 7.9 percent, versus 8.2 percent the previous month. Earnings are also expected from the likes of Lyft — which will report after the market closes on Monday — Walt Disney, Occidental Petroleum and Adidas.

Investors say that they are looking for the prospect that the election results on Tuesday could lift the stock market, particularly if Republicans retake control of the House of Representatives — a forecast made by nonpartisan analysts. That would leave the United States government divided, which some investors enjoy because it lowers policy uncertainty.

But this year, any lift from the elections will probably be trumped by interest-rate anticipation, corporate results and economic data, investors and strategists say. “These days, market prices are more determined by central bank expectations rather than political expectations,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers.

If inflation looks like it is cooling this week, markets could have “a goldilocks period,” Mr. Ielpo said. In recent days, his team has begun adding exposure to stocks and bonds. The firm’s flagship multi asset portfolio has roughly 50% of assets in cash, having trimmed from 70% prior to the October stock-market rally.

Still, he said, any rally in the stock market that may come is likely “to be very temporary” and could easily reverse as the global economic outlook deteriorates.

Until at least late next year, it was unlikely that inflation would drop to more “normal” levels, said Matt Stucky, a senior portfolio manager at Northwestern Mutual Wealth Management. This sort of relentless inflation would force the Fed to continue tightening monetary policy, even if it ends up pushing the economy into recession, he said. “When the Fed sees inflation in the 8% area code, they’re not going to pause, they’re not going to stop,” Mr. Stucky said.

Shares in Meta Platforms, the parent of Facebook, rose 5 percent after The Wall Street Journal reported that the company planned to start large-scale layoffs this week.

Palantir Technologies plunged 13 percent after the data-mining company reported earnings that fell short of expectations and forecast slower sales growth in the current quarter.