Wall Street stock futures and Asian shares lost steam on Wednesday after Democrats won control of the U.S. House of Representatives, boosting the party’s ability to block President Donald Trump’s political and economic agenda.
But European stocks were expected to rise, with spread-betters looking at gains of up to 0.5 percent in Britain’s FTSE, 0.8 percent in France’s CAC and 0.7 percent in Germany’s DAX.
The Democrats’ House win creates a hurdle for Republicans to easily pass legislation through both chambers of Congress, clouding the outlook for some of Trump’s key economic proposals.
Major U.S. broadcasters projected the Democrats were headed to a gain of more than 30 seats, well beyond the 23 they needed to claim their first majority in the House in eight years, while the Republicans were seen gaining a few more seats in the Senate.
While both outcomes were broadly in line with market expectations, a reason markets did not sell off, the prospect of political gridlock creates some uncertainty for investors. The dollar weakened against most of its major counterparts.
“In the short term, a Republican loss in the House should amplify risk market volatility, detract from positive sentiment, and be positive for U.S. rates,” said Ed Al-Hussainy, senior rates and currency analyst at Columbia Threadneedle Investments at Minneapolis in the United States.
“Long dollar and short Treasury futures positioning is relatively stretched going into tonight and could exaggerate short term moves in these prices,” he added.
In addition, the newly empowered House Democrats will have the ability to investigate Trump’s tax returns, possible business conflicts of interest and allegations involving his 2016 campaign’s links to Russia.
In equities markets, U.S. S&P500 futures ESc1 last traded 0.1 percent higher and MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS were up a similar amount, but they were far off highs hit earlier.
Japan’s Nikkei ended down 0.3 percent, giving up morning gains.
“It has clearly become difficult for Republicans to pass additional tax cuts or amendments to Dodd-Frank regulations (on financial institutions) for instance,” said Tomoaki Shishido, fixed income analyst at Nomura Securities.
Market sentiment had been volatile in Asian trade with stocks and the dollar swinging on the Republicans’ fluctuating prospects of retaining the House.
While a split Congress would put a brake on Trump’s agenda, such as tax cuts or deregulation, some investors think the Democrats may agree to more spending.
“There are still areas with compromise for spending, so 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, New York-based senior economist at BNP Paribas Asset Management.
“If there is additional fiscal stimulus, it suggests that fiscal policy is more of a tailwind for U.S. growth and it should, all things equal, be supportive for stocks.”
On the other hand, many investors expect Trump to continue to take a hard line on tariffs, which he can impose without Congressional approval, and foreign policy.
That keeps alive worries about a trade war between China and the United States.
Trump’s massive tax cut, enacted in December, and a spending agreement reached in Congress in February have helped lift the U.S. economy, but they have also widened the federal budget deficit.
As a result, Treasury supply has been growing, pushing U.S. bond yields higher.
The election results pushed down the 10-year U.S. Treasuries yield about 2.5 basis points to 3.189 percent, off its seven-year high of 3.261 percent touched a month ago.
But the debt market also remains under pressure from this week’s record volumes of longer-dated government debt supply.
In the currency market, the dollar dipped.
Against the yen, it was 0.3 percent lower at 113.13, reversing earlier gains to one-month high of 113.82 yen.
The euro rose 0.15 percent to $1.1446 and the British pound gained 0.1 percent to $1.3117, hitting a three-week high.
Sterling extended gains made the previous day on hopes of a Brexit deal breakthrough after Brexit Secretary Dominic Raab said “Thumbs Up” on his way out of a cabinet meeting.
That helped sterling recover losses following remarks from a senior member of the Northern Irish Democratic Unionist Party earlier that it looked like Britain would exit the EU without a deal.
Oil prices were soft after a 2 percent fall the previous day. U.S. crude futures hit an eight-month low as Washington granted sanction waivers to top buyers of Iranian oil and as Iran said it has so far been able to sell as much oil as it needs to.
U.S. West Texas Intermediate (WTI) crude CLc1 futures traded 0.6 percent lower at $61.85 a barrel having hit a low of $61.31 on Tuesday, the weakest price since March 16.
International Brent crude LCOc1 futures fell 0.25 percent to $71.95, after hitting a low of $71.18 on Tuesday, its lowest since Aug. 16.
Nigeria’s Borrowing Remains Relatively Low At 19% – Minister
Minister of Finance, Zainab Ahmed, has said Nigeria’s borrowing still stands at 19 per cent of the Gross Domestic Product (GDP). She said this level is low compared to debt levels in Ghana, Brazil, South Africa, Egypt and Angola.
The minister also said there is no plan to remove fuel subsidy. She said the International Monetary Fund merely advised the federal government to remove fuel subsidy but assured Nigerians fuel subsidy removal plans are not even being considered at this time.
On the question of the country’s debt level, the minister said Nigeria’s borrowing is still at 19 per cent of GDP. She said this is still within the country’s fiscal responsibility act which allows a maximum of 25 per cent of GDP.
The minister said Nigeria has the lowest level of borrowing compared to other countries.
Inflation Nightmare Returns To Haunt Zimbabwe
The price of bread almost doubled for Zimbabweans last week, as the inflation nightmare that marked the rule of long-time authoritarian leader, Robert Mugabe, returns to haunt his successor, Emmerson Mnangagwa.
There have been warnings of the mental and physical toll the rampant price increases will have on Zimbabweans after the cost of a loaf of bread basically doubled to three and a half dollars, and a tub of butter shot up to $17 from eight fifty.
Mnangagwa pledged to revive his country’s moribund economy when Mugabe was toppled in 2017 after 37 years in power.
But after the central bank unveiled a new monetary policy in February, introducing a new local currency, prices of goods and services have skyrocketed at rates unseen in a decade.
The disparity between the official and parallel market exchange rates has been rapidly widening, triggering price hikes of up to 300 percent.
The chief of the Zimbabweauthoritarian leader, Robert Mugabe, says he is angry at the government for “putting on a brave face and giving the impression that the economy is on a rebound, but on the ground things are going in the opposite direction.”
The crisis has brought back memories of a decade ago when hyperinflation peaked at a grotesque 500 billion percent, wiping out the Zimbabwean dollar.
Inflation Rate Jumps To Almost 67% In Zimbabwe
Zimbabwe’s statistics agency, said on Monday, year-on-year inflation rate, for March, has spiked, to almost sixty-seven percent under, the new base used to calculate the consumer price index. The agency noted that under the old basing system it used until February this year, the rate had shot up to a hundred sixty-six percent, confirming that Zimbabwe was already in a hyper-inflation environment.
An economist, Steve Hankie, posted on twitter that the actual inflation rate was more than 200%. He said this is the second highest annual inflation rate in the world.
Another economist, Kipson Gundani, says the current inflation figures were emanating from confidence deficit bedeviling the economy.
This new inflation rate may not be a shock to Zimbabwean. In 2008, the country’s inflation reached 500 billion percent, rendering the local currency worthless and eroding savings and pensions.
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