Supporters of Democratic House candidate from Kansas Sharice Davids cheer and cry after learning she won her race at her election night watch party at the Embassy Suites Hotel in Olathe, Kansas, USA, Nov. 6, 2018. EPA-EFE/JIM LO SCALZO
Bangkok Desk, Nov 7 (efe-epa).- US stock futures jumped while the dollar fell Wednesday following the midterm elections, with investors bracing for a power divide that could temper major shifts in American policy, according to a Dow Jones report supplied to EFE.
As Democrats took hold of a majority in the House of Representatives and Republicans retained control of the Senate–the outcome many analysts and investors expected–S&P 500 futures rose 0.8% in early Wednesday trading and the Stoxx Europe 600 index was up 1.2% after a muted reaction in Asia.
A Democratic House and a Republican Senate make radical economic policy changes less likely to occur, analysts said, as it is more difficult to generate agreement around tax and broader economic policy.
“Markets typically do well when you have a split Congress,” said Todd Jablonski, chief investment officer at Principal Portfolio Strategies. “Investors feel comfortable with that; it gives a sense of stability and a sense that change won’t happen too quickly.”
Some market participants said they were simply pleased to have the event in the rearview, removing a source of political uncertainty that has contributed to recent volatility in markets.
After a bruising October selloff, “the midterms provided a headache for anyone who wanted to put their capital to work,” said Jordan Rochester, a currency strategist at Nomura. Although the result was widely expected, many investors were skeptical that polls could be completely trusted after being wrong-footed in recent elections, he said, pointing to low volumes and minimal market moves this week in the lead-up to the vote.
In currencies, the ICE U.S. Dollar Index edged down 0.5% as investors largely anticipated a less expansive U.S. fiscal policy. Ahead of the election, traders generally said a Republican sweep would have boosted stocks and the dollar, while an across-the-board victory for Democrats would cause the reverse, by making additional tax cuts and moves toward deregulation less likely.
The dollar initially rose as expectations briefly built that the Republican Party would retain control of both houses.
Despite gains in stocks, some other asset prices suggested a very slight increase in risk aversion. The yen, which is known as a haven for investors looking to avoid risk, rose 0.3% against the dollar. Yields on the benchmark U.S. Treasury 10-year note, viewed as a global risk-free asset, declined to 3.187% from 3.214% Tuesday afternoon as its price rose. Gold was up 0.7% at $1,234.60 an ounce.
In Asia, stocks mostly reversed earlier gains, with Hong Kong stocks up 0.1% after earlier rising more than 1%. Japan’s Nikkei Stock Average fell 0.3% as the yen strengthened.
Some analysts attributed the market caution to a slightly increased risk of further presidential investigations and budget debates and concerns about what the results might mean for policy around China.
Hannah Anderson, global market strategist at J.P. Morgan Asset Management in Hong Kong, said the biggest question from clients is what the midterm elections will mean for global trade policies. The American economy and the U.S.-China trade spat could play larger roles in stocks’ direction through the end of 2018 and thereafter.
The Federal Reserve meanwhile concludes a policy meeting Thursday as investors closely watch for signals about the path of interest rates in 2019. Fed-fund futures tracked by CME Group showed investors’ expectations for interest rate increases in December and early 2019 were little changed following the midterm results.
By Steven Russolillo, Saumya Vaishampayan and Riva Gold