US midterm elections: Limited implications for markets - Danske Bank

According to analysts from Danske Bank, the midterm elections in the US (November 6) should have limited implication for markets and also for the economy. 

Key Quotes: 

“In August and September, the generic ballot polls moved in favour of the Democrats – from 47.6% at the beginning of August, to 49.0% at the time of writing. Still, according to FiveThirtyEight, the probability of the Democrats winning control of the House of Representatives has declined to 73.9% (from a peak of 83.1%), as support for the Republicans has also increased (currently at 41.3%). It remains our base case that the Democrats win the majority in the House.”

“The Democrats still face a tough Senate map, as not many Republican seats are up for election. Some 24 of the 35 of the seats up for election are held by Democrats. Five of them (West Virginia, North Dakota, Missouri and Indiana) are in states where Trump won by 18 percentage points or more. Most of them are considered ‘toss-up’ states.”

“According to FiveThirtyEight, the probability of the Republicans maintaining Senate control has risen to 78% from slightly lower than 70%.”

“A divided US Congress means that Trump would become a lame duck, who is unable to push his domestic policy agenda through.”

“The Midterm Elections should have limited implications for markets and the economy, as it would be difficult for the Democrats to roll back Trumponomics even if they won both chambers. The risk is, though, that he becomes even more hawkish on foreign policy and trade policy after the election.”

“Despite trade tensions, Trump has remained popular among farm state voters. However, the risk for Trump is that his tariffs could have a negative impact on the agricultural sector, which may lead to a decline in his support. This would likely affect the outcome of both the Senate and the House elections in favour of the Democrats.”