Markets Cheer Expected Elections Outcome

Risk trades are higher after Democrats regained control of the House in a vote that tracked close to what polls were expecting. Kiwi is the highest performer after a solid jobs reports ahead of the RBNZ decision. EURUSD is attempting to close the day above 1.1440 to make it above the Sep 24 trendline resistance. The DOW30 was stopped out and the EURUSD long was closed for 145 pip-gain. A special note was issued on EURUSD post-elections & pre-Fed. 

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There was no major surprise in the US midterms. Democrats won a dozen-seat majority in the House which is slightly less than forecast. Republicans did better in the Senate, expanding their majority and winning a pair of very tight races. Overall, Republicans did a bit better than expected but there were no surprises and the balance of power has tilted back towards gridlock.

So what's behind the surge in indices? As we wrote before the vote, elections are by definition uncertain events and increasingly emotional events. Almost any result would have led to a sigh of relief to some extent. This means that further tax cuts are less likely in the US but it's also a check on the President's trade war and some of his darker impulses. The S&P 500 opened 21 points higher and is  now up 42 pts. DOW30 is up 358 pts, above its 55-DMA for the 1st time since Oct 10.

Looking ahead the RBNZ is largely expected to leave rates at 1.75% .The currency jumped after the unemployment rate dropped to 3.9% from 4.5% earlier today. That's the lowest in 10 years and could be a game changer for the central bank. The drop in unemployment came despite a 0.2 pp rise in participation. Wages also jumped 1.4% q/q compared to 0.8% expected. NZD/USD has rebounded nicely from a test of the 2015/16 lows in the past six weeks but is still 500 pips below April levels. A shift from the RBNZ and continued USD selling could help to close that gap.