The United States voters go to the polls today to vote in the Mid-Term elections, a subject touched on in yesterday’s calendar item. So what are the key risks ?
Firstly, this is a turnout battle. Quite simply, the side that proves better at motivating its registered voters to get out and vote will gain the upper hand. However it is important to remember that only the lower chamber of Congress (House of Representatives) has all 435 seats contested. In the Senate, only 35/100 seats are in play. Currently, the Republicans control both chambers, but they do not have the comfortable margin that would be necessary to get legislation enacted with any form of dissent in their own ranks, as evidenced by the Kavanaugh fiasco. Some commentators believe that the Democrats will gain overall control of the House, but be unable to make sufficient ground to also gain control of the Senate. This would result in a democrat program of frustrating Government business without regard for merit. This is not ideal, but not a disaster. Barack Obama had similar problems but in the end solved them by the use of Executive Orders, which simply by-pass the legislature. The worst-case scenario for Trump, the Dollar and equity markets in general would be Democrat victories in both the House and the Senate. This would pave the way for the Democrats to pursue their dream of impeaching the President for the heinous crime of beating Hillary Clinton in 2016. Such an outcome would be likely to cause large-scale withdrawal of investor funds and cause them to look for opportunities elsewhere. It needs hardly be said that if the business of economic growth is not seen as a priority by the arms of Government then continued investment seems most unwise. Additionally, one assumes that a certain amount of economic positivity is already priced into both the currency and equity markets, and such a Democrat victory is likely to cause a scramble to realise value whilst the opportunity exists. This is where a note of caution needs to be sounded regarding Exit Polls and Pundits. Anyone who paid attention to pundits in November 2016 will recall that Hillary Clinton was repeatedly given a 98% chance of winning the Presidential race. Since most U.S. news channels are highly partisan we’d view any such forecasting with suspicion. Although there will be the usual accusations of voter fraud and dirty tricks, the only thing that matters are the actual results – not the predictions. Finally, if the Republicans retain control of both chambers, and even increase their margins, we’d expect to see a victory rally for dollar and equity assets, in the short term at least.