SYDNEY, Jan 6 (Reuters) – Asian markets were headed for a Democratic victory in key Senate contests on Wednesday as Treasury yields 10-month expectations over COVID-incentives, infrastructure and more debt-funded spending on renewable energy. Reached a high level.
Analysts believe this will be positive for economic growth globally and thus most of the risk for assets, but negative for bonds and dollars and a further decline in the US budget and trade deficit.
Head-to-head by-elections became necessary in Georgia for the state’s two Senate seats, when no candidate was in more than 50% of the race in the November elections.
The early voting results were still nail biting and Democrats needed to win both contests to take control of the Senate, while just one win would allow Republicans to remain in charge and lead to legislative deadlock.
Democratic control of the Senate will give more scope for President-Elect Joe Biden to act on his ambitious agenda, including new incentives and infrastructure spending.
It may also include higher corporate taxes and stricter regulations, usually not in favor of Wall Street.
In turn, this could increase regulatory risk for banks, health, large technology and fossil fuel companies, while crimping after tax income and EPS events.
The risk was enough to see Nasdaq futures slip 1.1% in Asia, while S&P 500 futures lost 0.5%.
Yields on the 10-year Treasury notes reached 0.99%, the highest since mid-March and just one whiskey from the psychological 1.0% Bulker.
Ray Etrill, head of NAB’s FX strategy, said, “The market has considered potentially higher bond yields from the implication of Biden budgetary arithmetic losses.”
“Having said that, a good case is a decent case to be fascinated by the prospects of strong fiscal support in 2021, putting aside for now – but not indefinitely – concern about higher taxes and regulation.”
Analysts believe that much needed work on infrastructure will be positive for economic growth, jobs and sectors like construction and transportation.
Yet it would have to be financed by more borrowing, a downside to the dollar that is already peaking under the balloon budget and trade deficit burdens.
“The US core balance of payments – current account and long-term investment flows – is the most negative in a decade, suggesting that there is no underlying demand for the dollar,” said Ilyas Haddad, a senior currency strategist at the CBA. (Reporting by Wayne Cole; Editing by Sam Holmes)