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Stock market reaction to US midterm elections

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McNamee


  • Global markets are mixed on Wednesday after, as
    expected,  

    Democrats take control of
    the US House of Representatives, while the Republicans retain
    control of the senate.
  • This outcome could lead to “gridlock” with legislation
    harder to pass.
  • Chinese stocks suffered, with worries that the result
    could lead President Trump to double down on his trade war,
    which does not require Congressional support.
  • US stock futures are pointing to a higher open, with
    the Nasdaq set to rise about
    1.2%. 

    European stocks are climbing
    higher.  
  • One casualty of the results: The dollar, which dropped
    0.4%. The Mexican peso is rallying.

Global markets are broadly higher on Wednesday, but
reaction to news overnight that the
Democratic Party has taken control of the US House of
Representatives
seems to have had little major impact on
sentiment.

The Democrats had been widely expected to flip the house,
with the Republican Party retaining control of the Senate, and
that is how things appear to have panned out, with the Democrats
reaching the 218 seat mark needed for a majority just after 3:00
a.m. Eastern Time. 

“Welcome to gridlock,” Paul Donovan, chief economist at UBS
Wealth Management said on Wednesday morning. “Trump may now fall
back on policy areas that do not require Congress, like
trade.” 

Individual race upsets aside, the lack of a broad surprise
means that markets have remained fairly sanguine.

“As this outcome was widely anticipated, we see little
immediate market impact,” UBS Wealth Management said in a note
issued by its chief investment office.

Here’s the markets scoreboard:

  • Nasdaq futures up 1.2%, S&P 500 up 0.7%, and the
    Dow is up 0.6%
  • The Shanghai Composite Index closed down 0.6%
  • The US dollar index is down 0.4%. The dollar is down
    0.5% against the euro and is down 0.3% versus the yen. The
    Mexican peso is up 0.6% against the US dollar. 
  • The benchmark Euro Stoxx 50 is up 1.3%. Britain’s FTSE
    100 is up 0.9% , and 

    Germany’s DAX is up
    0.9% 
  • Gold was up 0.7%, while Brent oil fell slightly, 0.2%
    lower. 

Overnight in Asia, most major indexes fell, perhaps
reflecting worries that the increased strength of the Democrats
will lead Republican President Donald Trump to double down on
some of his core policies, including his trade war with China.
China’s benchmark index, the Shanghai
Composite
, was 0.7% lower at the close.


Read more: 

Midterms
2018 LIVE: Democrats take the House, GOP holds the Senate in a
wild election night


Donovan’s view was issued by his colleagues in the chief
investment office who note that an “increase in gridlock is
likely, making it difficult to pass legislation.”

“Without common ground on areas to cut spending, the budget
deficit is likely to remain higher than usual,
keeping upward pressure on long-term government bond
yields.”

The prospect of gridlock seems to have impacted the US dollar,
with the
dollar index
— which tracks the currency against a basket of
its peers — dropping around 0.4%.

“The USD has edged gradually lower against many of its
counterparts over the course of this week, with this related to
expectations that the Democrats winning some influence could
provide some legislative resistance towards Trump further pushing
forward pro-America policies,” FXTM’s Jameel Ahmed said in an
email.


Screen Shot 2018 11 07 at 08.47.34Markets Insider

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