Stocks rise, Dollar falls as Dems take the House

There’s been an interesting reaction to the outcome of the US midterm elections with stock markets in Europe gaining and US futures also in the green, while the US dollar has fallen back. The results themselves were broadly in-line with expectations as the Democrats took the House of Representatives and the Republicans increased their majority in the Senate. Despite Trump taking to Twitter to proclaim a “tremendous success” there’s little doubt that this is ultimately a victory for the Democrats who now have greater political power, which may allow further investigations into the Trump administration and his business affairs and also the ability to block legislative plans such as a border wall with Mexico.

Less politics not a bad thing?

From the market’s perspective the most positive outcome in the near term for stocks would have been if the Republicans had retained their House majority as further fiscal stimulus in the form of additional tax cuts and infrastructure spending would provide another Trump bump. However, this may have led to greater long term problems for equities with these actions likely being met with higher bond yields and a tighter Fed policy. The fact that the initial reaction for stock futures is clearly positive is pleasing and suggests that perhaps political gridlock in Washington is no bad thing for the markets. While it is unlikely that significant further stimulus will come from the fiscal side, the scope for negative developments has also diminished with the Republicans losing some power, and with the US economy currently purring along nicely you could say that the less political interference going forward the better.

Oil jumps on 2019 production talk

It’s been a bad time for crude oil bulls of late with the price of Brent experiencing heavy declines in October and falling to its lowest level in over 10 weeks just yesterday. The expected supply shock from US sanctions on Iran now appears unlikely to be anywhere near as bad as had been feared, with the announcement of waivers on Tehran’s largest customers letting more air out of the price. The sharper moves in the near term for crude oil are often driven by demand and this morning talk of further cuts from OPEC+ next year caused a sharp move higher.

According to a Russian media agency the Kremlin and Saudi Arabia have been discussing reducing their output in 2019 and the price of oil has swiftly bounced more than 2%. There’s still some way to go before a bottom can be called here and traders will no doubt be eagerly awaiting this afternoon’s US inventory data which has shown a build in weekly stockpiles for 6 weeks running. Last night’s private inventory figures can often shape market expectations for today’s number and with a rise of 7.8M seen in the API release there’s a pretty high bar for a negative number this afternoon.