Asian, European markets mostly up but analysts warn of gridlock | Fin24
 
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Asian, European markets mostly up but analysts warn of gridlock

Nov 07 2018 11:52

Markets in Asia and Europe mostly rose on Wednesday but analysts warned about the economic impact from gridlock on Capitol Hill after the US midterm elections left the two houses of Congress split between Democrats and Republicans.

Donald Trump's Republican party maintained its control of the Senate but the Democrats regained power in the House of Representatives.

The results were broadly in line with forecasts but they will likely mean the president faces a tough two years ahead of his 2020 re-election bid, with Democrats ready to fight against his tax-cutting, deregulation agenda, while also boosting oversight of the White House.

"The split Congress means that there is more likely to be gridlock, which will significantly curtail (Trump's) legislative agenda," said James Knightley, chief international economist at ING.

While he pointed out that the two sides could possibly work together in areas such as infrastructure spending, he said "for the most part divisions between and within the parties mean that progress will be difficult.

"For example, President Trump's proposal on additional income tax cuts has received a major blow because of the election result."

However, he did say that with more tax cuts unlikely in the next two years, there could be less pressure on the Federal Reserve to raise interest rates more aggressively. The central bank's drive to tighten borrowing costs to offset the surging economy have weighed on global markets in recent weeks.

And Nader Naeimi, head of dynamic markets at AMP Capital Investors in Sydney, saw the result as a "good outcome" for the world economy.

"When you look at the pressure on the US dollar, the expectations of more fiscal spending in the US adding to more pressure on debt and debt issuance, having a split government now with more checks and balances is actually a positive set-up for markets."

Hong Kong finished 0.1% higher after swinging through the day, while Shanghai ended 0.7% down and Tokyo shed 0.3%.

Sydney added 0.4%, with Singapore 0.3% up. There were also gains in Taipei and Wellington but Seoul lost 0.5% while Manila, Bangkok and Jakarta were also down.

In early European trade London rose 0.7%, Paris added 0.6% and Frankfurt 0.5%.

But Neil Wilson, chief market analyst at Markets.com, added that Trump's long-running trade war with China would be unlikely to be affected, meaning tit-for-tat tariffs will continue, eventually squeezing US consumers.

"A split Congress will, in all likelihood, not stop Trump from doubling down on tariffs with China. This could result in us getting all the anti-growth measures of Trump without more of the pro-growth reforms," he warned.

Brexit hopes

The dollar retreated against its major peers as well as higher-yielding and emerging market units.

The pound continued to rise as traders grew optimistic that officials are close to an agreement for a post-Brexit deal for Britain, with the question of Northern Ireland the main sticking point.

"With the smoke surrounding a possible Brexit deal thickening, the trading market looks justified in taking the view there must be a fire somewhere," said Ray Attrill, head of forex strategy at National Australia Bank.

Energy firms dropped with oil prices on worries about an oversupply following a forecast-beating rise in US stockpiles, while the head of the International Energy Agency called on OPEC to boost output.

The comment from director Fatih Birol comes as Venezuela's production dries up and US sanctions on Iran kick in.

However, the commodity was already depressed by news that Washington had given waivers to eight countries allowing them to continue buying crude from Tehran, tempering most of the embargo's impact.

"At least three of the top five consumers of Iranian crude have been granted waivers. Therefore the impact is likely to be substantially muted," Sukrit Vijayakar, founder of energy consultancy Trifecta Consultants, told AFP.

Both main contracts are down about a fifth from their four-year highs touched at the start of last month.

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european markets  |  equities  |  markets  |  asian markets
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