Stock traders cheer, dollar investors jeer US midterm results

By November 7, 2018 No Comments

Win McNamee

  • Global markets were mixed Wednesday after, as expected, Democrats took control of the US House of Representatives while the Republicans retained control of the Senate.
  • This outcome could lead to gridlock, with legislation becoming even harder to pass.
  • Chinese stocks suffered, with worries that the result could lead President Donald Trump to double down on his trade war, which does not require congressional support.
  • US stock futures were pointing to a higher open, with the Nasdaq set to rise about 1.1%. European stocks were climbing higher.
  • One casualty of the results was the dollar, which dropped 0.6%. The Mexican peso was rallying.

Global markets were broadly higher Wednesday, but reaction to news overnight that the Democratic Party had taken control of the US House of Representatives seemed to have 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 panned out, with the Democrats reaching the 218-seat mark needed for a House majority just after 3 a.m. ET.

“Welcome to gridlock,” Paul Donovan, the 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 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 1.1%; S&P 500 up 0.7%; Dow Jones Industrial Average up 0.6%
  • Shanghai Composite Index closed down 0.6%
  • US dollar index down 0.6%, with the dollar down 0.6% against the euro and down 0.35% versus the yen; Mexican peso up 1.5% against the US dollar
  • Benchmark Euro Stoxx 50 up 1.3%; Britain’s FTSE 100 is up 1.1%; Germany’s DAX up 1%
  • Gold up 1%; Brent oil climbed 1.43%

Overnight in Asia, most major indexes fell, perhaps reflecting worries that the increased strength of the Democrats would lead the 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 0.6% 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 noted 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,” they said.

The prospect of gridlock seems to have affected the US dollar, with the dollar index — which tracks the currency against a basket of its peers — dropping by about 0.6%.

“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 Ahmad said in an email.

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