Standard Charted on US Midterm Potential Market Reactions
A Republican sweep has an 8-10% probability but would have the most immediate asset market impact Rates and the USD would likely rise, although fiscal uncertainty would also increase Markets would likely prefer an outcome signalling dissatisfaction with both parties’ extremes If this The USD could well benefit from this upward rates move. However, in our view, any USD strength would be contingent on markets expecting the Fed to keep inflation low and real rates high. It could be a challenge for Warsh to avoid tying high rates to the fiscal stance, but markets are generally tolerant of deficits if resultant high real yields do not compromise growth or inflation prospects. There are plausible narratives in which markets lose confidence in US fiscal sustainability, pushing the USD lower. However, as long as growth remains robust, we think the balance of risks is tilted towards USD strength. We expect investors to draw some signals for 2028 from any clear surprises. If the blue wave really hits, say the Democrats look to be well into the 240s in the House and 52 or more seats in the Senate, markets may well see risk that support for the Democrat agenda is greater than expected. Bond yi
A Republican sweep has an 8-10% probability but would have the most immediate asset market impact Rates and the USD would likely rise, although fiscal uncertainty would also increase Markets would likely prefer an outcome signalling dissatisfaction with both parties’ extremes If this The USD could well benefit from this upward rates move. However, in our view, any USD strength would be contingent on markets expecting the Fed to keep inflation low and real rates high. It could be a challenge for Warsh to avoid tying high rates to the fiscal stance, but markets are generally tolerant of deficits if resultant high real yields do not compromise growth or inflation prospects.
There are plausible narratives in which markets lose confidence in US fiscal sustainability, pushing the USD lower. However, as long as growth remains robust, we think the balance of risks is tilted towards USD strength. We expect investors to draw some signals for 2028 from any clear surprises. If the blue wave really hits, say the Democrats look to be well into the 240s in the House and 52 or more seats in the Senate, markets may well see risk that support for the Democrat agenda is greater than expected.
Bond yields could come off if a Democrat 2028 win is seen as likely leading to higher taxes and restrictions on AI development and data centre build-up, although Democratic candidates also have a spending programme.