LONDON, Nov 9 (Reuters) – Investors are expecting Republican gains in the U.S. midterm elections, an outcome that could quell worries about Democratic spending and regulation but spark a deadly fight for a rising vote. US debt ceiling next year.
Control of Congress was still up for grabs early Wednesday, with most of the most competitive races not called, making it unclear whether Republicans will break Democrats’ tenuous grip on power.
US stock futures were broadly lower at the start of the European trading session, while the US dollar rose , , .
Republicans were favored to take control of the House of Representatives, polls and betting markets showed earlier, but Democrats flipped a key Senate seat in Pennsylvania, boosting their hopes of holding the Senate. It will be hours or days before enough vote counts are known to decide the outcome.
With Democrat Joe Biden in the White House, Republicans taking the House would lead to a divided government, an outcome that has been accompanied by positive long-term stock market performance in the past. Read more
MICHAEL HEWSON, CHIEF MARKET STRATEGIST, CMC MARKETS, LONDON:
“If the Republicans can get a blockage in one of the chambers, then ultimately it might be less inflationary because it will mean the Democrats can’t spend that much money, so in terms of returns that might be a good thing.
“That’s potentially also positive for equity markets and that’s probably why we’ve seen a weaker dollar, but obviously the focus remains on tomorrow’s CPI numbers and in particular the base number.”
FIONA CINCOTTA, SENIOR MARKET ANALYST AT CITY INDEX, LONDON.
“It looks like it’s a little tighter than expected. Republicans are still expected to overthrow the House of Representatives.
“We see Washington locked in as dollar negative. Any restrained spending measures could bring inflation down and potentially we could see less aggressive moves from the Fed (US Federal Reserve).”
STUART COLE, CHIEF MACRO ECONOMIST, EQUITI CAPITAL, LONDON
“The midterm elections don’t seem to have gone as well for the Republican Party as expected, but even though they seem to be making smaller gains, it still looks like they will do well enough to take control of at least the House and that alone suggests a political stalemate in the future.
“It will almost certainly be an end to the tax hikes the Biden administration has been talking about forcing on American businesses and the wealthy. It also means an end to the loose fiscal policy that Biden was pursuing. This is especially important because he removes a source of stimulus from the economy and makes it a bit easier for the Fed to get inflation under control, as it may allow for a lower terminal rate.
“But the prospect of another battle over raising the US debt ceiling and the prospect of government shutdowns as Democrats and Republicans argue over it looms large.
“For markets, a stalled administration should be positive for equities, given that it makes things a bit easier for the Fed.”
DANNI HEWSON, FINANCIAL ANALYST, AJ BELL, LONDON:
“The fact that we haven’t seen a Republican landslide like many people expected now raises questions about whether or not the Democrats will retain control of the Senate. You’re in a slightly different situation and it Seems like the Biden presidency hasn’t been hit hard by this midterm election, so markets are in wait-and-see mode.”
CHARU CHANANA, MARKET STRATEGIST, SAXO MARKETS, SINGAPORE
“The race seems to be tighter than expected, especially for the Senate. If the Democrats take the Senate, it will be a huge embarrassment for the Republicans even if they (they) take the House.
“US index futures have turned negative, and I think (the) dollar could go up if the Democrats retain the Senate.”
GARRETT MELSON, PORTFOLIO STRATEGIST, NATIXIS INVESTMENT MANAGERS SOLUTIONS
“The likely outcome (of the election) is a stalemate of one form or another. A divided government reduces the likelihood of significant legislative changes, thereby reducing political uncertainty – a benefit for risky assets.
“Looking to mid-to-late 2023, we could see delayed effects of the election as the debate over the budget and the debt ceiling comes into focus. If Republicans take one or both houses of Congress, expect a potentially contentious political crisis that could contribute to some market volatility in 2023 before an eventual resolution is reached.”
QUINCY KROSBY, CHIEF GLOBAL STRATEGIST AT LPL FINANCIAL, CHARLOTTE, NC
“Some of the key races are pretty close. It’s going to take some time to see who wins but it’s surprising… We already have a deadlock scenario as the Republicans are going to take the House. The market can accept the deadlock. This means that many measures taken by the administration will be thwarted by the opposing party.
“That said, if Republicans take the Senate with the House, that provides a business-friendly backdrop for the market.”
RANDY FREDERICK, VICE PRESIDENT OF TRADING AND DERIVATIVES, CHARLES SCHWAB, AUSTIN, TEXAS
“Obviously we don’t have 100% reporting on anything yet, but it doesn’t look like anything we’ve seen so far has spooked the markets.”
ASH ALANKAR, HEAD OF GLOBAL ASSET ALLOCATION AT JANUS HENDERSON INVESTORS
“On the one hand, the reduced likelihood of corporate and personal tax and capital gains tax increases that accompany a Republican victory will be a tailwind for all stocks…but on the other end , the prospects of no tax increases and the extension of Trump’s tax cuts are all potentially inflationary, as the private sector has more after-tax disposable income.
“A Republican victory will generally be positive for equities, but inflation risk is unlikely to be mitigated or accelerated.”
TROY GAYESKI, CHIEF MARKET STRATEGIST, FS INVESTMENTS, NEW YORK
“In the event that the House and Senate tumble, it could lead to some sort of minimal bear market rally, but ultimately Fed tightening, money supply contraction and the inevitable recession will dominate the market. evolution of the political landscape in the United States.
“When you think about the order of importance for the markets, it’s really the Fed, the economy, the very troubling situation overseas and intermediaries, they’re just not very relevant over the past 6 , next 12, 18 months, because they are really almost a non-event.
“If Congress flips, that could be seen as good news by investors, because it means the fiscal stimulus is over and, on the sidelines, it might make the Fed’s job a little easier to break inflation. .”
JJ KINAHAN, CEO, IG NORTH AMERICA, CHICAGO
“Having a balanced ticket in terms of Republicans, whether they get the House and the Senate, or just the House, will help slow some of the government spending that many have seen as a major contributor to inflation. So, it can help do some of the Fed’s job for them, so to speak, and that’s why it would be viewed favorably by the market.”
BROOKS RITCHEY, CO-CIO, K2 ADVISORS
“If we get a divided Congress, we may have to adjust our portfolios to be less defensive than we are today.”
IPEK OZKARDESKAYA, SENIOR ANALYST, SWISSQUOTE BANK
“From an investor perspective, a Republican win in both houses is a good outcome for stocks. And even a split government, which we’re sure to get, is better for stocks than a Democratic win.”
JACK ABLIN, CHIEF INVESTMENT OFFICER, CRESSET CAPITAL, CHICAGO
“I think the markets are rallying to the prospect of a stalemate.
“Fiscal spending has created a challenge for central banks around the world. The prospect of no legislation is a bullish inflation signal.”
Compiled by the Global Finance & Markets Breaking News team; Editing by Christopher Cushing and Tom Hogue
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