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Analysts at TD Securities explained that polls suggest a number of individual close races in the US midterm elections, but most poll aggregators, betting markets, and expert analysis all point to Republicans picking up a seat or two in the Senate, while Democrats manage to capture a slim majority in the House of Representatives.  

Key Quotes:

“We see the ex ante probability of divided government around 65%, with materially higher odds of a Republican sweep than a Democratic one.”

“Treasuries: Split government should lead to a risk-off bull steepener, with markets pricing out Tax Cuts 2.0 and infrastructure spending.”

“FX: Risks are binary for the USD, though this leans to the downside. The USD is a well populated long, so an outcome that wrestles away power from the GOP could compel markets to question the durability of the “Buy America” theme.”

“A divided Congress should also calibrate to closing the wedge between relative macro surprises and the USD.”