Mixed reaction in global markets to US midterms

The mixed outcome of the US midterm elections has raised fears of a tougher line on trade from US President Donald Trump, with a divided congress potentially encouraging him to double-down on policies that do not require congressional support. Chinese markets suffered losses this morning.

The midterms saw the Democrats take control of the House of Representatives and the Republicans retain a Senate majority – an ambiguous result that could create congressional gridlock, TIME reports.

CNBC reports decline in Asian bourses following the result, with Japan’s Nikkei 225 down 0.28 percent, the Shanghai Composite down 0.68 percent, and the Shenzhen Composite down 0.43 percent. Hong Kong markets ended flat, with the Hang Seng index up only by 0.12 percent.

Chinese stocks particularly suffered, perhaps reflecting worries that a divided Congress will see the Trump Administration escalate its aggressive trade policies in the hope of delivering economic wins to carry into the next presidential election campaign. Trade policy in the US, including the imposition of tariffs, is directed by the executive and is not reliant on Congress.

In contrast with Asian markets, US and European stocks experienced major climbs, as reported by Business Insider. The Nasdaq Composite surged 1.2 percent, while the S&P 500 and the Dow Jones were up 0.7 percent and 0.6 percent respectively. Similar trends were seen across Europe, with the benchmark Euro Stoxx 50 up 1.3 percent and an increase of 0.9 percent to both Britain’s FTSE 100 and Germany’s FAX.

With results announced, investors are now focusing on the Federal Reserve policy statement due this Thursday. The split congressional result significantly dims the prospect for further fiscal stimulus, Reuters reports.

With the prospects of further legislative tax cuts and deregulation fading away, the Federal Reserve’s policy tightening cycle may be nearing its end, which could lead investors away from the US to seek out cheaper foreign shares. However, the Financial Times reports that many investors are still confident that there are unlikely to be any near-term fiscal, regulatory, and monetary policy changes.

The US-China trade war continues weighing on markets, although hopes rose that the proposed meeting between President Trump and Chinese President Xi Jinping at the G20 Summit later this month may diffuse the months-long trade dispute. At the Bloomberg New Economy Forum in Singapore, Chinese Vice-President Wang Qishan announced that the Chinese side is “ready to push for a proposal acceptable to both sides to resolve their economic and trade issues,” the South China Morning Post reported.

The trade tensions between the US and China will be a key focus at Asia House’s major trade conference in Singapore this November.