What Will Become of the Gridlocked Congress and Its Effect on Asia Market?

The result of 2018 midterm election
Even though the official announcement has yet to come, we can now grasp that the Republicans will continue on holding the majority in the Senate with at least two more seats, while losing the majority in the House of Representatives to the Democrats with at least 26 fewer seats. The ballots still are being counted, but the results should not be any different.

Now, when the new faces arrive at the House, holding the majority votes, what will happen to the President and his policies when the situation becomes a gridlock? The wall, next round of tax cut, import imposition etc. will they not likely happen? It is not guaranteed that such policies will or will not happen, but they are sure to have to struggle against disapproval in the House before passing to the Senate for the rest of the two remaining years in Washington.

 

It is time for the Democrats!
The power in the House will also allow the Democrats to launch investigations on Trump’s finances, the Russian interference, administration ethics and scandals, and so much more, as well as halting the conservative legislative agenda in its tracks. They could even demand a probe into Trump’s long-concealed tax returns since the majority in the congressional committees have the ability to approve subpoenas, or in other words, to demand documents or in-person testimony. The impeachment “may” happen, but that does not mean a removal from the position of the US presidency, since it is the Senate’s responsibility, which the Republicans still hold the majority.

 

What lies ahead for Trump?
On the contrary, the arrival of Democrats in the House could give the opportunity for Trump to prove to 2020 voters that he can work with Democrats in certain ways. This is what Bill Clinton had done to build a more popular image with the American people in the face of a hostile Congress. But that is highly unlikely to happen since Trump is Trump and he loves to be…..himself.

And the increased Republican majority in the Senate, however, will make it easier for Trump to continue to appoint judges and remake the nation’s judiciary branch in a more conservative mold.

 

“The president’s agenda isn’t going to change, regardless of whose party is there,” White House Press Secretary Sarah Huckabee Sanders told reporters Tuesday evening as results came in. “We’re still going to be an administration that’s focused on lowering taxes, growing our economy, creating jobs, defeating ISIS, remaking the judiciary, fixing the tremendous opioid crisis that we have. I think we can work with Democrats on that.”

 

Analysts’ perspective towards the outcome of 2018 midterm election
Analysts see neutral in USD in the near term, but expect to weaken in the longer term (12-month) as more attention should be paid to the EUR and JPY fundamentals. Meanwhile, the analysts continue to overweight in US equities amid favorable macro conditions, healthy corporate balance sheets, strong corporate earnings and revisions, as well as active share buybacks. Meanwhile, for the past 17 US midterm elections dating back to 1950, in the 6 months and 12 months after the midterms, the S&P500 generated a positive return in ALL cases.

As for the bonds, with the US GDP growth expected to stay above trend in the near term, fiscal policy remains expansionary, analysts continue to suggest a short duration bias and stay with higher quality developed market issuers to avoid uncertainties from EM slowdown and trade tensions.

 

Asia markets
Asia stock markets have been swinging between modest gains and losses after the US midterm elections delivered a divided Congress but little in the way of surprises for jittery investors, seeing uncertainties in the US of how politics will turn out in a gridlock.

October was one of the worse months in the decade in trading history, while the Chinese currency also hit its lowest since the financial crisis in 2008. Analysts see that the stock markets have passed its lowest point, and would be on its hike. Even though there are some short-term uncertainties after the midterm election, the long run would do just fine. Moreover, the coming of the Democrats could possibly find a solution for the trade war sooner than expected.