Mild reaction to mid-term US elections
Reaction to the US elections was limited but expected. The Shanghai Composite was down 0.68%: Trump is free to continue his trade war. USD was lower, as combative US politics will head toward gridlock and disorder. Crude prices fell to USD 61.92 per barrel, down 4% in a week, despite expectations that sanctions on Iran will tighten. Trade-sensitive currencies had priced in the outcome, so were unchanged. We anticipate US stocks to rally on a smooth election and expectations that Trump’s expansionary policy will continue. No politician will stand in front of a tax cut. While the Federal Reserve Bank is still in a hiking cycle, the late-stage economic cycle will naturally decelerate the economy, despite Trump’s fiscal easing, suggesting that US yields are near a peak (10-year yields under 3.50%).
It’s a sad day for American liberals. President Trump’s strange behaviour and policy by the seat of his pants seem still to win support. Only with an unusually high voter turnout were Democrats able to gain the House, while Republicans strengthened their Senate majority. US cultural and political divisions have only deepened. A reactionary blue wave, expected to refute Trumps erratic leadership, failed to show up. Still, Democrats now have a check on Trump. We expect the House will try to impeach him.
German production boosts Euro
EUR/USD is expected to expand further, approaching the 1.1535 range, as German industrial production continues to grow at a constant pace, 0.80% annually and 0.20% monthly in September, strongly supported by the automotive sector. Factory orders continued to progress, with a monthly rise of 0.30% thanks to higher machinery and equipment orders.
The positive economic news comes after the announcement of Chancellor Merkel’s last term ending in 2021 and the continued weakening of Germany coalitions in Bavaria and Hesse state elections. Germany is showing signs of robustness as industrial activities remain solid. Along with high performance of the automotive industry, other sectors have been progressing sideways since the beginning of this year. We expect German Q4Q GDP to bounce back.