switzerlanden
Democrat poll win weakens Trump’s power

Democrat poll win weakens Trump’s power

07-11-2018 | Insight

A Democrat victory in US elections is positive for markets, though a return to fiscal discipline is unlikely, says Chief Economist Léon Cornelissen.

Speed read

  • Democrats win control of House of Representatives in mid-terms
  • More fiscal stimulus likely on common ground with Republicans
  • Impeachment unlikely as two-thirds Senate majority needed

The Democrats won control of the House of Representatives in the Congressional elections of 6 November, but failed to win the Senate. Mid-term elections, coming in the middle of Trump’s first term in office, are usually seen as a referendum on the sitting president.

Controlling the House means the Democrats can block any initiatives from Trump’s Republican party, which had held both chambers of Congress for the past four years. It therefore counters the president’s power, though populist issues such as the trade war with China and more tax cuts are set to continue, Cornelissen says.

“More fiscal stimulus is likely, as it isn’t in the interests of Democrats to turn into champions of fiscal discipline,” he says. “There are some that say Democrats will turn down any initiative from Trump, but they do have a lot of common ground on issues such as tax cuts for the middle class, and the need to rebuild American infrastructure.” 

“However, given that the 10-year Treasury yield is down 5 basis points, the market is pricing in the fact that the chance of another big package of fiscal stimulus has come down. This also fits with equity futures being unchanged, since fiscal policies now focus on consumers rather than companies.”

Stay informed on our latest insights with monthly mail updates
Stay informed on our latest insights with monthly mail updates
Subscribe

Pressure on Fed

“So, fiscal policy will remain loose, putting more pressure on the Fed, which will probably continue to increase interest rates but at a moderate pace. The broader trends of suspicion of China and rising protectionism won’t change. Economically, the low-intensity trade war with China will probably continue, as the anti-China card is also popular with the Democrats. Nevertheless, it isn’t in the interests of the US to play this too hard.”

“Trump suggested a milder approach before the elections, though this was probably only meant to influence market sentiment. The Democrats will also opt for a softer tone, though a quick de-escalation seems unlikely. And China won’t materially change its growth strategy, so it’s difficult to see what will happen; some kind of ‘play-it-safe’ mode could emerge all round.”

FBI investigation

Meanwhile, Trump and his party are currently under investigation by a special counsel led by former FBI director Robert Mueller over alleged collusion with Russia in the 2016 presidential election. The president is also under pressure to release his tax returns from when he headed the Trump real estate group before his election.

“The victory of the Democrats wasn’t overwhelming, but it does put a check on Trump’s US nationalism and more extreme plans, and his attempts to dismantle international institutions and accords will be hindered,” Cornelissen says. “This is positive for markets as it creates more visibility.”

“Democrats will now increase the pressure on Trump because the House will push to publish his tax returns and conduct their own investigation on any Russian interference with the 2016 presidential elections. What is more important is whatever Mueller comes up with.”

Impeachment is unlikely

“The hand of Trump has weakened. But any impeachment is far off, and it’s not certain that the Democrats will in any case start impeachment proceedings, because it is likely to fail in the Senate where they would need a two-thirds majority. So it could also be that they refrain from this because it’s a useless battle.” 

“Meanwhile, the presidential elections in 2020 cannot now be considered a shoo-in for Trump. In a broader sense, there is still worry that the whole Trump phenomenon will change the global order structurally, as seen with the other populist victories in Italy and Brazil. It has though curtailed it within the US, so that’s a good thing.”

Subjects related to this article are:
Logo

Disclaimer Robeco Switzerland Ltd.

The information contained on these pages is for marketing purposes and solely intended for Qualified Investors in accordance with the Swiss Collective Investment Schemes Act of 23 June 2006 (“CISA”) domiciled in Switzerland, Professional Clients in accordance with Annex II of the Markets in Financial Instruments Directive II (“MiFID II”) domiciled in the European Union und European Economic Area with a license to distribute / promote financial instruments in such capacity or herewith requesting respective information on products and services in their capacity as Professional Clients. 

The Funds are domiciled in Luxembourg and The Netherlands. ACOLIN Fund Services AG, postal address: Affolternstrasse 56, 8050 Zürich, acts as the Swiss representative of the Fund(s). UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zurich, postal address: Europastrasse 2, P.O. Box, CH-8152 Opfikon, acts as the Swiss paying agent. The prospectus, the Key Investor Information Documents (KIIDs), the articles of association, the annual and semi-annual reports of the Fund(s) may be obtained, on simple request and free of charge, at the office of the Swiss representative ACOLIN Fund Services AG. The prospectuses are also available via the website www.robeco.ch. Some funds about which information is shown on these pages may fall outside the scope of the Swiss Collective Investment Schemes Act of 26 June 2006 (“CISA”) and therefore do not (need to) have a license from or registration with the Swiss Financial Market Supervisory Authority (FINMA). 

Some funds about which information is shown on this website may not be available in your domicile country. Please check the registration status in your respective domicile country. To view the RobecoSwitzerland Ltd. products that are registered/available in your country, please go to the respective Fund Selector, which can be found on this website and select your country of domicile. 

Neither information nor any opinion expressed on this website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco Switzerland Ltd. product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports. 

By clicking “I agree” you confirm that you/the company you represent falls under one of the above-mentioned categories of addressees and that you have read, understood and accept the terms of use for this website.

I Disagree