Analysts at Westpac explained that a base case for Democrat gains in the House at this week’s midterm could taint Trump’s pro-growth agenda.
Key Quotes:
“Matching that, in the nine mid-terms since 1982 the USD and US yields tended to fall when Republicans lost seats and vice versa (see slide three). But the bulk of Trump’s pro-growth policies – tax cuts, deregulation, hefty spending increases and pushing out the debt ceiling – has been implemented.”
“Markets are then unlikely to be bothered too much if Trump/Republicans face a midterm rebuke. One could even see a scenario where an infrastructure program is revived under a Democrat led House. That might be part of the messaging from both Trump and Democrats in the immediate wake of the midterms, raising the prospect of a repeat of the market gyrations seen in the evening of the 2016 presidential election (albeit on a much smaller scale); early risk aversion on Democrat gains that gives way to market optimism for more pro-growth policies the following day, in the form of a large scale infrastructure program.”
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