He has already got a red hat with “veto” on it

Outlook

The midterms resulted in a resounding rejection of Trump and his bad ideas and worse management. We toggled between cable TV channels but had to give up on Fox when the “reporters” spoke of inflation during Biden’s term as a “cumulative” 22%.

Some analysts have projected a change in financial conditions if Trump lost, but we are not so sure. More likely is the angry revenge he will try after being rejected by the voters—and to such an extreme. He has already got a red hat with “veto” on it. He says he can work across the aisle but nobody believes him. The NYT, FT and WSJ each call it a “stunning rebuke”—the spineless Republicans lost 25 in the House and 7 in the Senate. 

We await the Trump response to his rejection from foreigners. China gloated. Others worry that his fondness for shocks is not going away—tariffs, wars, etc.

Also, the Trump camp rejects regulation of AI while the Dems favor some guardrails. But again, the composition of Congress doesn’t change until January.

The unexpected move was the US 10-year falling under 4.87% yesterday, the lowest since Sept 10. It closed higher and is higher again this morning at 4.921%, but see the chart in the Chart Package. This sure looks like a falling trajectory and not a one-time blip.

The drop in yields progressed as the election results came in, even though the polls (and online betting) had predicted the outcome. Well, we don’t trust polls after they had Clinton winning the first time we got Trump). The assumption is that the Dems will halt Trump’s gay abandon spending, but that’s not realistic.

On the data front, we get the ADP private sector payrolls today. Yesterday it was JOLTS, where an unusual amount of quits resulted in an unusual number of replacement hires. Friday it’s the usual nonfarm payrolls. Today we also get the ISM composite PMI and Sept trade balance.

Forecast

We saw the dollar slump late yesterday and it looked stronger than the usual Tuesday push-back. In every currency, momentum pointed to continuation over two or three days. Despite the setback this morning and our breakfast of crow, it’s not clear the pundits are wrong—the midterms may indeed prefigure more regulation and lower spending. There are plenty of old Tea Partiers who might join and talk of reining in the fiscal deficit, while just talk, can have a powerful effect.

We guess the prospects in the Iran war will override economic data and speculation about new policies. And it’s Trump’s choice. Talks are supposedly ongoing although we have no reliable news and can’t believe anything Trump says. If he TACO’s, oil prices drop and yields and the dollar follow.