International markets and US mid-term elections
US mid-term elections and its effect on international markets
In the past week, international markets responded to the US mid-term elections which were in many ways a proxy fight over support for or opposition to the Trump administration.
In the past week, international markets responded to the US mid-term elections which were in many ways a proxy fight over support for or opposition to the Trump administration. While the Democrats gained control of the House of Representatives, the Republicans held on to their majority in the Senate.
On Wednesday, US stocks rallied to their highest levels since the October selloff as investors’ fears about the elections and potential radical economic policy changes diminished. Both the Dow Jones Industrial Average and the S&P 500 Index rose by 2.1% and were up by 5.9% and 5.2% respectively year to date. The divide in Congress may lead to legislative gridlock for the remainder of US President Trump’s term. In addition, a Democratic House means the Trump administration is likely to face an onslaught of congressional investigations.
Moreover, there is a dislocation between US markets and the rest of the globe, with most markets having had a bad year so far. The Chinese Hang Seng is in bear market territory, with a 21.42% negative growth year to date. In the UK, the FTSE 100 returned -7.58% driven mostly by Brexit fears, while over the channel the CAC 40 and DAX recorded -3.87% and -9.77% returns respectively.
The local markets responded in a similar vein, with the ALSI losing 7.81% in value for the year, mainly because of the emerging market selloff and the October uncertainty in the US market.
Oil prices fell from their previous peak of $72.55 a barrel to $69.63. After reaching four-year highs in early October, oil prices went into a downward spiral following uncertainty surrounding global economic growth and rising production.
At its meeting on Thursday, the US Federal Reserve decided to leave short-term interest rates at 2% to 2.25% after having raised them in September. US rates will be the single largest driver of equity markets in 2019, as the cost of capital increase markets will have to respond with new valuations of equities.
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