Markets are booming as the US results of the ongoing elections are coming


After the oscillation between low profits and losses, Tokyo's Nikkei index and Hong Kong's Hang Seng rose about 1% on Wednesday. Other major markets in the region were a bit lower. US stock broking rose slightly.

The main US indicators closed slightly more than 0.5% on Tuesday as voters went to the polls.

Elections are shaped to have important political implications for the world's largest economy. CNN claims Democrats will win a majority in the House of Representatives while Republicans will retain control of the Senate. But investors do not bet on a dramatic change in politics.

Markets are stabilizing for a retention period, better or worse. None of the parties is likely to hold several votes to adopt clear legislation. Although this may mean that the Republicans and President Donald Trump have failed to cut taxes further, it also means that current tax cuts can not be reversed.

"The mid-term elections this week could lead to a shift in power balancing in Washington, but are unlikely to bring any short-term policy changes," Richard Turnill, head of BlackRock's global investment strategy, told clients before the results.

The dollar is very strong. This could harm the economy
But the 2016 elections and the Brexit referendum reminded investors of the importance of waiting for the unexpected. Both amazing facts sparked dramatic reactions in the markets. Futures futures were initially sunk on the night of Trump's election, before they recovered and closed with a resounding profit.

If Congress is divided, as it now seems likely to be, America's fiscal, regulatory and monetary policy may remain the same. Investors usually do not have the mind, they say cynically it means that Washington can not be shuffled.

"We see little continued market impact if in the medium term they reach a divided Congress," Turnill writes.

However, the excessive gap may also be bad, as evidenced by the dead end of the 2011 debt ceiling, which has led to a downgrade of credit unprecedented.
Gold is back. This is a worrying sign

"We expect financial deadlines to become more disruptive," said Goldman Sachs analysts in a report this week.

Markets, especially the bond market, could have a more dramatic response if the Republicans keep control of Congress. In this scenario, Goldman Sachs expects a tax cut of around 0.3% of GDP to come into force in mid-2019.

The bond market may be rebellious if Washington adds to the nation's existing budget deficit. Most tax cuts will lead to more borrowing and possibly higher bond yields.

Daniel Shane contributed to this report.