What's going on?
US midterm elections on Tuesday went largely as expected as the country turned a little more blue. Stocks ticked up overall – but the US dollar downsized.
What does this mean?
There are three branches of government in the land of stars and stripes, one of which is Congress – responsible for making laws. Congress is made up of the Senate and the House of Representatives. Halfway through the president’s term in office, the entire House gets re-elected, as well as just over a third of the Senate (plus most state governorships).
On Tuesday, the Democratic Party wrested control of the House from the Republican Party, winning the most seats, while the Republicans increased their majority in the Senate. Previously, both were Republican-held – so some changes are likely afoot.
Why should I care?
For markets: Stocks voted up.
US stocks were up overall on Wednesday after the widely predicted result emerged, dispelling the uncertainty that typically causes investors to sell stocks. Investors in pharma companies were likely cheering as the counts came in – the Democrats controlling the House probably won’t back the president’s proposed caps on the prices those companies can charge for prescription drugs (tweet this). And investors in banks will likely raise a glass, too: with the Republicans holding on to the Senate, looser regulations already in motion are unlikely to be halted. Investors in industrial firms might be feeling all-too blue, however – Democrats are likely to block any major infrastructure spending plans, denying them a potential windfall.
The bigger picture: The dollar dips – but that’s a win for some.
The US dollar slid following the results – no surprise, as a split Congress will likely lower the volume at the party the US economy’s been having in 2018: the heady days of tax cuts and spending bonanzas may now be over. But that’s good news for emerging markets with debts denominated in US dollars, as those debts – and their repayments – get a little cheaper.