The Democrats won the House, but lost the Senate. Markets react positively

As predicted, the Democrats managed to take control of the two Chambers for the first time in eight years, but lost to the Republicans in the Battle of Senate. Voters supporting Trump were mostly influenced by his rhetoric about illegal immigrants and his policy against them. Much of the Democrats are starting to prepare their presidential election campaigns in 2020. But the two parties accredit Trump's ability to gather his followers, especially in the small cities of America, while the Democrats succeeded in attracting women and former voters - the Republicans who have opposed Trump's policy. Earlier today Trump thanked all who supported him with a Twitter post.

The new control over the House of Democrats will follow with an immediate influx of summons and launches of investigations against Trump from tax reforms to his ties to Kremlin. Also the probability of impeachment appears on the horizon.

History shows that such a development we saw in the Interim election has led to a US dollar depreciation and stock growth, and especially in specific sectors such as firearms manufacturers. American Outdoor Brands Corp. and Sturm Ruger & Co. are two companies that are seen as a measure of the political climate. Democrats openly criticize the impact of the energy sector on the environment, while pharmaceutical companies, tobacco and mining, and airlines are highly regulated industries and are unlikely to benefit from enhanced democratic oversight. In particular, for the energy sector, we will probably see a strong Outflow, as the victory of the Democrats will come at an extremely awkward moment. To date, oil is almost 20% lower than the peak, and price outlooks are still negative. 10-year US bonds would also suffer as gold prices and strong dividends in the above-mentioned groups.

On the FX market (the EUR / USD M5 chart) during the Asian session, we saw a volatility when the first results of the ballots appeared and we see that the first move has a drop of about 70 pips. A typical Whipsaw effect is subsequently obtained when the price jumps on the second move, which returns 70 pips up again, and when moving three this morning, we see a weakening dollar.

For Dow Jones futures (DJIA M5), we see a small consolidation followed by a breakthrough in revealing a clearer picture of the results.

On the maps below, we can trace the vote for states first to the Chamber and then to Senate.

The Democrats are disappointed that they have failed to win the Senate, but what they have achieved is enough to recharge them and feel joyous. "If it had not been in the Senate, we would have been overwhelmed by the blue wave," says Brendan Boyle, a Democrat from Pennsylvania, who won her third term.

Source: Bloomberg Finance L.P.

Source: Financial Times

Charts: Used with permission of Bloomberg Finance L.P.

Photo: Uniplash