Daily Commentary BY THE CURVE TEAM –

Increased Uncertainty for US Following Mid Term Elections

8th of November, 2018

The US mid-term elections have been run and won and the result, despite some early uncertainty, has unfolded as expected. While it is too early to tell what it means for the broader outlook, the broader monetary policy outlook should get clearer over the next 24 hours.

Voters in the US turned out and had their say overnight and while there was a swing against the Trump administration, it wasn’t as convincing as it could have been. Trump’s Republican Party held on to power in the Senate but the Democrats won back enough seats to take back the House of Representatives.

It is too early to tell what this means for the long term economic outlook for the US and the globe. What it does mean however is that President Trump will now need to work with the Democrats to pursue his agenda which will likely slow down the legislative process in the US.

It has been a strange reaction from markets. The USD has come under pressure as have US Treasuries, while equity markets have rallied. It doesn’t quite make a lot of sense but it will likely reconcile itself over time.

With the USD under pressure, the AUD has rocketed higher as the short squeeze continues. For now it shouldn’t be too much of a concern for the RBA but if the rally gets legs, it will have implications for the outlook for monetary policy.

We will get a broader update from the RBA tomorrow when the Quarterly Statement of Monetary Policy is released but before we get there the Fed will meet tonight in the US.

This is the last of the non-live meetings by the Fed, as there is no press conference scheduled for after the meeting. That is set to change next year with Chairman Powell moving to make all meetings live from the start of next year.

That also means no change to policy is expected at this meeting with the focus on what their accompanying statement says. It will likely lay the platform for another rate hike in December.

David Flanagan

Director - Interest Rate Markets