MUFG Research discusses a review of the US mid-term elections which resulted in a split Congress where Democrats win the House but suffer Senate losses to the Republicans who retains their control of the Senate.
"If you consider, in all the mid-term elections since World War II (16), the sitting president’s party has lost House seats in fourteen of those elections, with the average seat-loss being 29. Trump’s loss of 33 seats is looking to be only marginally more than the average – so this can hardly be described as a strong rejection of his presidency.
Crucially, from an economic policy perspective, we can now forget about the prospect of additional fiscal stimulus. That is reflected in the drop in yields and the modest weakening of the dollar. But this election result is unlikely to incentivise President Trump to change tack. Importantly, Trump’s direction in regard to trade policy and China may not change at all," MUFG argues.
"This is no ‘blue wave’ and no resounding rejection of President Trump that many Democrats were expecting – that will certainly limit the initial decline of the dollar on this result," MUFG concludes.