USD: A Republican “clean sweep” this is not – MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that the Democrats have also done poorly in the Senate and House elections and it looks increasingly likely that the Republicans will maintain control of Congress.

Key Quotes

“That certainly raises the prospect of notable tax reform, more restrictive immigration policies, fiscal stimulus to some degree and Chair Yellen being replaced when her term ends and increased pressure on “greater accountability” of Fed monetary policy.

But this should not be classed as your traditional “clean sweep” election victory used to describe one party having control of both Houses of Congress and the White House. Donald Trump is not a “republican”. He has divided the party to such an extent that senior Republican figures refused to stand with him. The Republican Party is traditionally pro-trade and push for fiscal consolidation. A sense of the interaction between the Republican Congress and the Trump White House will be a crucial determinant of how financial markets respond over the coming weeks.

If there is a sense over the coming days of Trump toning down on certain policies in order to work better with a Republican Congress, the financial markets may quickly revert attention to the potential positive growth prospects a more modest fiscal stimulus program might bring. Certainly a greater emphasis on tax cuts rather than increased government spending could be viewed positively.”