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Global Markets: U.S. Democrat election gains fuel stock surge, hits dollar, Treasury yields

Reuters  |  LONDON 

By Sujata Rao

LONDON (Reuters) - Wall Street looked set for a surge on Wednesday and global stocks rose after sharp U.S. election gains for the opposition Democrats, but the outcome, which casts doubt on further tax cuts, hit the dollar and sent Treasury yields lower.

The looked headed for a gain of more than 30 seats, well beyond the 23 they needed to claim their first majority in the House in eight years. With Donald Trump's holding onto its majority, the results from Tuesday's elections were in line with expectations.

While gridlock in could hamper Trump's political and economic agenda, few expect a reversal of tax cutting and financial deregulation measures that have already been enacted.

That view put all three equity indices on track for a strong opening, with S&P500 and futures up 1 percent and 1.3 percent respectively while the Dow Jones was set to open up 0.8 percent by 1030 GMT.

"The good in a way for markets is that there was an uncertainty that's now been removed. We know where we stand for the next two years, and investors will focus back on the fundamentals, which are (company) earnings growth and the economy," said Guy Miller, at

Interactive chart on U.S. midterms

After volatile Asian trade, where stocks and the dollar swung on the Republicans' fluctuating prospects, a pan-European stocks benchmark jumped around one percent while MSCI's world equity index was up 0.5 percent.

Sylvain Goyon, at the Oddo brokerage in Paris, said many investors had been on the sidelines before the election, due to what he called "an uncertainty premium".

"Now it's behind us, there's a good reason for them to get back to the market," he said.

Most analysts agree the newly empowered House will have the ability to investigate Trump's tax returns, possible business conflicts of interest and allegations involving his 2016 campaign's links to

Moreover, a split will be able to hamper Trump's push for a further round of tax cuts and deregulation - measures that have turbo-charged the U.S. economy, stock markets and the dollar.

The Fed is expected to signal this week that an interest rate rise remains on the agenda for December.

"Certainly it is now unlikely we will see additional fiscal stimulus in the near-term, that's a profound change but there will be no repeal of what's already in place," Miller said.

That view pushed the dollar 0.6 percent lower against a basket of currencies while 10-year bond yields fell to a low of 3.176 percent as it became clear that more fiscal stimulus was unlikely.

An initial knee-jerk rise to 3.25 percent came after early reports of a better-than-expected performance by the Republicans, but that move soon fizzled as results trickled in.

Bond markets may remain under pressure from this week's record volumes of longer-dated government debt supply and the yawning Federal deficit. Many also reckon more spending increases are still possible.

"Even with a split government, I expect more fiscal stimulus ahead. There is some possibility for compromise on infrastructure spending as well," said Steve Friedman, a at

Attention will also focus on Trump's hard line on trade tariffs, which he can impose without Congressional approval. That keeps alive worries about a trade war between and the

Chinese shares closed 0.7 percent lower, while Hong Kong markets ended just above flat. [EMRG/FRX]

"We would argue that if Trump can do less on the domestic front, he is more likely to focus on external matters such as trade, which will impact risk sentiment," said Patrick O'Donnell, at in London.

The dollar's weakness boosted other currencies. Against the yen, the greenback eased 0.4 percent to 113.06, reversing earlier gains to a one-month high of 113.82 yen.

The euro rose 0.6 percent to $1.1496, a two-week high, while the British pound gained 0.5 percent to $1.3168, rising for a third straight day after a report that Britain was preparing for a Brexit deal by end-November.

were soft after a 2 percent fall the previous day, with Brent crude futures down 0.25 percent to just below $72 a barrel .

(Additional reporting by in Tokyo; Tomo Uetake and Daniel Leussink in Tokyo, Daniel Bases in New York, Josephine Mason and Dhara Ranasinghe in London; Editing by Andrew Heavens)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, November 07 2018. 16:45 IST