No Blue Tsunami
The threat of the Blue Tsunami has officially receded as the GOP will hold the Senate, but none the less we need to keep things in perspective in a sense this is only 2018 and not 2020 so time to curb one’s expectations.
Volumes have been high, and equities remain supported suggesting this outcome is positive for risk since the gridlock outcome ultimately will support the president’s mandate and a higher probability of more fiscal stimulus.
The question is where the dollar will settle as the focus remains squarely on both EURUSD and USDJPY. If risk remains positive, we could expect bullish USD views to be played out against these critical currency pairs.
Traders especially love to price in worse case scenarios and bring out history books to prove points. i.e. that a Democratic house is bad for equity markets. OK maybe so but realistically I can’t see how the Democrats would want to be perceived as Killjoys and try to stifle any policy which is supporting the economy. Why not just let the natural course of tax cut fade out, if it does in 2019, and then the Democrats can have a good argument to counter what appears to be a very market friendly Republican policy.
The problem for Asia is that President Trump is unlikely to give China a free pass, despite the fact he said he would tone down post-election, I don’t believe one word of that claim.
China will be on Trumps ” naughty ” list and after all, is said and done on the election from we will be pivoting quickly to US-China relations.
So, we will be back to a very muddled outlook for Asia.
However, positioning is flat, so I’m not expecting any significant fireworks in Asia until we get the next escalation or de-escalation of US-China Trade risk.