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US mid-term elections

Market bounce likely to follow Democrats’ rebuke to Trump

Markets are expected to rally after US voters delivered a message of disapproval to President Donald Trump and put the Democrats in control of the House of Representatives.

Forecasters said the mid-term elections would see the Democrats hold a 229-206 House majority, taking over control from the Republicans for the first time in eight years and giving them an opportunity to rein in the White House agenda.

However, two years after Mr Trump was swept into office, his fellow Republicans increased their majority in the US Senate.

The outcome of the elections is likely to spark a bounce on the markets, given that it may tempter his scope for trade wars.

On the other hand, it may also cause some frustration at cutting taxes and making progress on internal reforms, such as banking regulation.

Meanwhile, the Democrats gaining control of the House of Representatives is “unlikely to bother President Trump too much”.

Nigel Green, founder and chief executive of financial adviser deVere Group, said: “The Democrats gaining control of the House of Representatives is likely to drive a rally in US. financial markets into the year-end.

“This U.S. bounce can also be expected to positively impact global financial markets, given the high correlation between Wall Street and risk assets elsewhere.

“However, it can be reasonably assumed that this rally will be relatively short-lived as it could then be offset by legislative gridlock in Washington. This will halt deregulation legislation, which in turn will hurt sectors such as banking, energy, industrials, and smaller companies that stood to gain most from looser controls. Pharmaceuticals may suffer as the Democrats seek to bring down drug prices.  

“The gridlock also means that fiscal policy will largely be maintained as it is, with no significant changes to spending or taxation.

“This might look like a defeat for Donald Trump, but the reality is that he might not mind losing the House of Representatives too much. 

“In this situation he could feasibly then attribute blame towards the Democrats should the economy falter and they refuse to pass more tax cuts to boost demand.”

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