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European stocks rally after US vote, eyeing political gridlock
LONDON, Nov 8, 2018 (BSS/AFP) – Stock markets on both sides of the
Atlantic charged higher Wednesday after the US midterm elections produced no
major surprises, triggering a relief rally.
“Financial markets are continuing their forward drive on the realization
that investors were rightly positioned for the outcome of the midterm
elections,” said Jamel Ahmad at FXTM.
The dollar, however, slid against main rivals as investors expected a
Democrat-controlled House of Representatives to provide “a potential
roadblock to President Trump introducing further fiscal stimulus”, he said.
– ‘Relief’ –
In the US, President Donald Trump’s Republican party maintained its
control of the Senate following Tuesday’s vote but the Democrats regained
power in the House of Representatives.
Broadly in line with forecasts, the outcome means that Trump faces a tough
two years before his expected 2020 re-election bid, with Democrats appearing
ready to fight against his tax-cutting, deregulation agenda and boost
oversight of the White House.
Wall Street’s top three stock indices were all solidly higher in the late
New York morning.
Patrick J. O’Hare at Briefing.com said the rise in stocks “likely speaks
to the relief that the election is done and that the overall result went as
expected.”
He added: “That fact has removed an element of uncertainty, which has
added to market volatility in recent weeks.”
The broad-based recovery in European stock markets suggests that
“investors are hoping that a split Congress will mark the end of Trump’s
protectionist agenda, as least as far as Europe is concerned”, said Simona
Gambarini at Capital Economics.
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– ‘Good outcome’ –
Other analysts pointed to the consequences of the Democrats holding the
House and Republicans the Senate.
“The split Congress means that there is more likely to be gridlock, which
will significantly curtail (Trump’s) legislative agenda,” said James
Knightley, chief international economist at ING.
While he pointed out that the two sides could possibly work together in
areas such as infrastructure spending, he said “for the most part divisions
between and within the parties mean that progress will be difficult.
“For example, President Trump’s proposal on additional income tax cuts has
received a major blow because of the election result.”
But such a scenario could mean less pressure on the Federal Reserve to
raise US interest rates more aggressively, taking some heat out of the
dollar.
The central bank’s drive to tighten borrowing costs to offset a resurgent
US economy has weighed on global stock markets in recent weeks.
Nader Naeimi, head of dynamic markets at AMP Capital Investors in Sydney,
saw the elections result as a “good outcome” for the world economy.
– Doubling down on tariffs –
“When you look at… the expectations of more fiscal spending in the US
adding to more pressure on debt and debt issuance, having a split government
now with more checks and balances is actually a positive set-up for markets.”
Earlier in Asia, the tone was somewhat less upbeat given the overhang of
US-China trade war fears. Hong Kong’s main stocks index finished 0.1 percent
higher after swinging through the day, while Shanghai ended 0.7 percent down
and Tokyo shed 0.3 percent. Sydney added 0.4 percent.
Neil Wilson, chief market analyst at Markets.com, said that Trump’s long-
running trade war with China would be unlikely to be affected by the vote
outcome, meaning tit-for-tat tariffs will continue, eventually squeezing US
consumers.
“A split Congress will, in all likelihood, not stop Trump from doubling
down on tariffs with China. This could result in us getting all the anti-
growth measures of Trump without more of the pro-growth reforms,” he argued.
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