Just before the U.S. midterm elections! A summary of the midterm elections

◎What is the midterm election

It is an election held between the presidential election and the next presidential election.

Because it is held in the middle, it is called a midterm election.

In the midterm election, one-third of the Senate seats and all the House of Representatives seats are up for re-election..

As a rough image, it is like the elections for both houses of Japan.

When the House of Representatives and the Senate are in a gridlock, politics cannot proceed.

There are differences between Japan and the United States, but in the United States too, if the Senate and the House are at a standstill, politics cannot progress.

This is the current situation in the U.S. Congress.

Senate (100 seats): Republicans 51, Democrats 47, Independents 2

House (435 seats): Republicans 240, Democrats 193, vacancies 2

※ As of end of October

◎Market consensus

※ Source: MoneySQUARE, Nishida

Elsewhere, some predict an 85% or higher gridlock, with Republicans leading both chambers at 15% and Democrats at approximately 0% in both chambers. Others have similar expectations with different proportions. However, what stands out is the lingering trauma from not fully predicting Trump’s victory in the previous presidential election.

◎Future schedule and reaction expectations

・Voting starts: June 6, 6:00 (7:00) to 19:00 (20:00) (Japan time: June 6, 20:00 to June 7, 14:00)

・Exit polls: from June 6, 19:00 (Japan time: June 7, 9:00~)

・Major results: late night of June 6 (Japan time: around noon on June 7)

In Western elections, as usual, the Tokyo market is the first to react to the results.

Voting-counting begins during Tokyo market hours, with exit polls appearing in sequence. Quick updates will come out progressively. In particular, close races will affect the Tokyo market with each速報. Afterward, definitive results in European markets will be announced, and the New York market will react. The flow of European and American markets is expected to influence the Tokyo market the following day. This is the anticipated pattern.

We forecast the following regarding results and reactions.

1)Senate Republican: House Democrat

Since this situation is the consensus, market reaction is expected to be subdued. Although there is a risk of stock price declines and dollar weakness due to concerns about a divided Congress, it is viewed as limited.

If this result occurs, the election itself has concluded with a risk retreat. Attention may shift to other risk events, or move toward risk-on sentiment.

2)Senate Republican: House Republican

Unforeseen, favorable for President Trump. A mini Trump rally may occur. Stocks and the dollar are expected to rise.

If this result occurs, be mindful of President Trump’s remarks. He may act as if the victory belongs to him. Later, as the dollar rises, criticism of the dollar could emerge. Pay attention to statements criticizing the dollar.

3)Senate Democrat: House Democrat

A mini-panic is expected, with significant stock and dollar declines. The October stock plunge last month could recur.

In this scenario, watch for a potential global stock sell-off. A chain reaction of panic selling in New York could continue the stock slide. Another concern is the 2020 presidential election, with attention on Trump’s words and actions for the next election.

Given the results of the 2016 presidential election and the unexpectedly weak economic growth, there is a possibility that unforeseen events may occur again this time. We plan to closely monitor front-row and immediate post-event analyses from analysts and economists.