Analysts at Rabobank suggest that Americans will cast their crucial votes in today’s mid-term elections, which for many will be a referendum on Trump’s presidency.
Key Quotes
“All seats in the House of Representatives and 35 seats in the Senate are up for grab.”
“The Democrats, betting on a ‘Blue Wave’, are hoping to regain control of the Senate and the House of Representatives: Based on the favourable margin in the polls, the historical precedence that the party in the White House loses in the mid-terms, and the narrative that there is “something to vote for”, the conventional wisdom has become that the margin of the Democrats will be enough to flip the House.”
“If the Democrats manage to win at least one of the two chambers – there is a fair chance for a House takeover, but the Senate map looks very difficult for the Democrats as Philip and Stefan explain – the US will end up with a divided government. This in turn would have significant implications for President Trump, who would not be able to ignore the Democrats. It would prove even more difficult for the White House to push critical legislation through Congress if the Democrats manage to win the House and the Senate. However, this is an unlikely scenario.”
“The latest opinion polls have indicated that the gap between the Democrats and the Republicans have narrowed, although the former are still favourite to take the House with the latter regaining control of the Senate. While such an outcome is the consensus view, the unusually high turnout driven by highly motivated both sides of the political spectrum could produce an unpredictable result which would have significant implications for the markets.”
“The Republicans staying in control of Congress would be a surprising outcome. Given that for many the mid-terms are a referendum on the Trump presidency, the Republicans’ victory would likely embolden President Trump to harden his stance on China. He would interpret such a result as a stamp of approval by Americans for his economic and trade policies. The Trump administration would be able to focus on infrastructure projects and perhaps implement more tax cuts, which could provide the US economy with even stronger momentum. A turbocharged economy driven by tax cuts and infrastructure spending could led to a much faster pace of tightening by the Fed.”
“Should the Democrats end up dominating Congress, President Trump would have to use all his negotiating skills (he claims to be a great deal maker) to cooperate with the Democrats on crucial policies. US stocks and the dollar would likely weaken in an initial reaction on the back of concerns that the Democrats may seek to reverse, at least partially, some of already implemented tax cuts.”
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