Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
There’s a buzz of election fever in the markets, as Americans prepare to head to the polls in the midterm elections.
As usual, the midterms are partly a referendum on the White House’s performance, potentially strengthening or loosening a president’s grip on the levers of power.
Investors around the globe are watching nervously to see whether the Democrats can seize control of the lower House of Representatives. Polls suggest they’ve got a good chance. Republicans, though, will probably maintain their grip on the Senate.
A good night for the Democrats could allow them to block Trump from further tax cuts and other fiscal stimulus. They could also try to restrict his ability to launch destabilising trade wars with other nations (although the president has plenty of unilateral powers here too).
That could weaken the dollar (as it removes some pressure to raise interest rates), bringing relief to emerging market currencies.
A Democrat-controlled House could (and surely would) also launch fresh investigations into the president’s conduct, casting the shadow of impeachment over the White House. That could send stocks sliding on Wall Street.
But if the Republican vote holds up, Trump would be re-energised to continue pushing his America First strategy – creating more volatility in the markets, and possibly intensifying the trade dispute with China.
So currencies, stocks and bonds around the world will be affected by where millions of Americans put their cross today.
Tom Fitzgerald, co-manager of the Amity International Fund at EdenTree Investment Management explains:
So far, Republican control of the legislative powers – the House of Representatives and the Senate – has made possible President Donald Trump’s large fiscal package and his deregulation agenda, as well as protected him from various ongoing investigations. An election outcome favourable to the Republicans, maintaining both the House and Senate, could set the global economy and markets on a very different path at a time when both Europe and China are showing signs of weakness. In such a scenario, President Trump would have broader policy options, including on the fiscal front and the ability to carry on with his deregulation agenda. The market could perceive this scenario as the most pro-growth, as it would raise the chances of larger tax cuts and additional spending.
In contrast, in a scenario of favourable election results to the Democrats, giving them control of the House and Senate, President Trump would have very limited policy options for the rest of the legislature. As further fiscal easing may not be possible, President Trump might focus policy efforts on the trade war against China or implement trade threats against the EU. Europe would therefore be negatively affected by such shocks, given the large impact of car tariffs on Germany and Europe.
Also coming up today
New surveys of purchasing managers at service sector companies across the eurozone are released. They’re expected to confirm that growth slowed in October, matching the slowdown at UK services firms that was reported yesterday.
But there’s better news from Germany this morning; factory orders rose by 0.3% in September, stronger than expected.
- 9am GMT: Eurozone service sector PMI for October
- 10am GMT: Eurozone producer prices index for September