Markets recover after US Congressional election results ease tension
The outcome of the US Congressional election on Tuesday has caused some relief in the international financial markets. In the election, the Democrats won back the majority in the House of Representatives, the lower chamber in the US Congress, while the Senate remains in Republican hands.
Congress is the supreme legislative body of the United States and consists of two chambers, the House of Representatives and the Senate. Parliamentary work takes place through the interaction of the House of Representatives and the Senate, with the entire Congress being the government’s opponent in accordance with the Constitution.
The results of the US Congressional election were as expected. According to analysts, this takes a lot of uncertainty out of the markets, which investors accordingly acknowledged with new entries, causing a 2 per cent rise in the leading US indices on Wednesday. Prices also recovered in Asian and European stock markets following the election. The US dollar, on the other hand, lost some ground against the euro, which temporarily climbed to just under 1.15 dollars on Wednesday.
US bond markets did not show much movement on Wednesday, although yields for medium and longer maturities pulled back a little. This is due to US President Donald Trump’s now somewhat less solid position in Congress. As the House is now dominated by the Democrats, the market expects a tighter rein on budgetary and fiscal policy. This could conceivably slow or halt new fiscal impulses, which in turn could not only slow economic growth in the country, but also the speed of the Fed’s interest rate hikes in the medium term. This outlook puts pressure on US bonds, reducing yields.
No trend reversal expected in US economic and interest rate policy
However, even though Trump’s policy is coming under stronger democratic control, analysts do not believe that there will be a major turnaround in US economic and foreign policy. With regard to the US’s international trade conflicts, Trump is likely to continue as before. According to experts, he won’t have to face much resistance, as there are supporters of his protectionist tendencies in the democratic camp – especially in the conflict with China.
The US Federal Reserve policy is not expected to change much after the election either: according to experts, the Fed’s course will probably remain unaltered. At the interest rate meeting on Thursday evening the Fed left the key interest rate unchanged, as expected, but signaled a further hike for December. The last increase took place in September, with the interest rate range was raised to 2.00–2.25 per cent.
Forecasts are not a reliable indicator for future developments.