US Midterm election: a divided congress opens two possible scenarios

US Midterm election: a divided Congress opens two possible scenarios

Key takeaway: In the midterm election Democrats win the House and the GOP (Grand Old Party) strengthens its position in the Senate.

Possible scenarios ahead: We believe there are two paths that could emerge between the Democratic leadership in the House and Trump. The first path is the emergence of divided government, leading to very little meaningful legislation enacted. The second path is a constructive one where there are areas of commonality between Trump and the Democratic leadership in the House (infrastructure spending). The biggest downside risk to financial markets from the midterm elections - a repeal of President Trump's fiscal tax plan – is extremely unlikely, as the Democrats do not have a veto proof majority in the House or in the Senate. However going forward, Trump will need to work with a Democratic House on the budgetary side and will no longer be able to drive fiscal policy, as it remains the purview of the House. Trump will maintain the unfettered ability to impose tariffs, so there continues to be high probability of a further escalation in trade tensions between US and China with the imposition of tariffs on the final $267bn in Chinese exports to the US.

Read more