SYDNEY (Reuters) – Asian markets leaned in an important Senate contest on Wednesday as treasury yields reached 1% for the first time in ten months on expectations of more debt-financed spending on COVID stimulus, infrastructure and renewable energy.
Analysts generally assume that a democratically controlled Senate will be positive for economic growth worldwide and therefore for most risk assets, but negative for bonds and the dollar, as the US budget and trade deficits swell even further.
The head-to-head run-off elections in Georgia for the two state Senate seats became necessary when no candidate in either race exceeded 50% of the vote in November’s election.
The result of the early vote was still nail-biting and Democrats must win both games to take control of the Senate, while just one victory will leave the Republicans and likely lead to legislation.
Raphael Warnock, the Democrat who wants to oust Republican U.S. Senator Kelly Loeffler, retained the lead in one of the two races, although no major news outlet predicted a winner for one of the two races.
Georgia’s Secretary of State Brad Raffensperger told CNN late Tuesday that the vote would stop overnight and resume in the morning, with the result only announced in the early afternoon.
Democratic control of the Senate would precede the election of Pres. Joe Biden gives more room to act on his ambitious agenda, which includes new stimulus and spending on infrastructure.
It could also include higher corporate taxes and stricter regulations, policies that are not usually favored by Wall Street.
This in turn could increase regulatory risks for banks, healthcare, large-tech and fossil fuel businesses, while shrinking to tax revenues and EPS valuations.
The risk was enough to see Nasdaq futures fall 1.3% in Asia, while S&P 500 futures lost 0.5%.
The yield on 10-year treasury notes rose to 1.0020%, exceeding the psychological bulge of 1% for the first time since the mid-March chaos.
“The market should potentially consider much higher bond yields due to the shortfall implications of Biden’s budget account, assuming it has proven it can execute its plans,” said Ray Attrill, head of NAB’s FX strategy.
‘However, it is said that a decent case is being made that risk markets will have the prospect of stronger fiscal support in 2021, and that it will for the time being – but not indefinitely’ – put aside concerns about higher taxes and regulation. ‘
Analysts assume that a much-needed expansion of infrastructure will be positive for economic growth, jobs and sectors such as construction and transport.
However, it will have to be financed by more loans, a negative for the dollar which is already crunching under the burden of the budget and the trade deficits.
“The U.S. basic balance of payments – the current account plus long-term investment flows – is the most negative in more than a decade, indicating that there is no underlying demand for dollars,” said Elias Haddad, a senior CBA street executive.
Reporting by Wayne Cole and Kevin Buckland; Edited by Sam Holmes and Richard Pullin