SYDNEY, Jan. 6 (Reuters) – Asian markets leaned into a major Democratic victory in key Senate contests on Wednesday as Treasury revenues peaked at ten months above expectations of more debt-financed spending on COVID stimulus, infrastructure and renewables energy.
Analysts generally assume that it would 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 a stalemate in the legislature.
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 expire Nasdaq futures in Asia by 1.1%, while S&P 500 futures lost 0.5%.
The yield on 10-year treasury notes rose to 0.99%, the highest since the chaos in the mid-March market and only a mustache of the psychological bulge of 1.0%.
“The market should potentially consider much higher bond yields due to the shortfall implications of Biden’s budget account, assuming it was apparently able to execute its plans,” added Ray Attrill, head of FX strategy at NAB.
‘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 currency strategist at CBA. said. (Reporting by Wayne Cole; Editing by Sam Holmes)