US equity market advanced over 2 percent last night on a split congress result from the US midterm elections.

The result, Republicans remain in control over the senate whereas Democrats take over the house. This is largely within expectations and therefore, removed much of the political uncertainties in the near term. The result is also likely to ensure the checks and balances of power over the next 2 years of Trump’s presidential term, putting the investigation of possible link between Russia and 2016 presidential campaign under scrutiny.

The formation of a gridlock congress is likely to constrain the Trump administration from pushing through domestic policies, such as tax cut and fiscal stimulus due to rising concerns over budget deficit and debt burden. The outlook of massive infrastructure plan and further tax cut need to be adjusted to factor in possible resistance from Democrats from approval of economic stimulus. The impact over the foreign policy and trade issues, however, is likely to be limited as Democrats have long been hawkish towards China policy. The US-China leaders’ meet-up in G20 summit later this month, is arguably the next most important political event to move the markets.  

US dollar slide alongside with treasuries, whereas equities climbed in response to the election result. DowJones climbed for a seventh-consecutive day to 26,180 area, with both 10-Day SMA and SuperTrend (10,3) flipped upside. This suggests that its short-term direction has turned positive as near-term political uncertainties are cleared.

Brent oil price is trying to find some support at around 72.1 area, which is also a 127.2% Fibonacci Extension level. Last night’s DoE crude inventory report showed the crude stockpile increased for a seventh consecutive week, and the amount rose more than expectation. Weaker US dollar helped to underpin that negative effect.

Today’s China trade balance data will be a key focus for market participants to find clues of possible impact from trade tariffs. The previous month’s exports beat expectations partly due to front-load effect, rendering market sceptical on when the tariffs will start to have material impact on the traffic of goods between the worlds’ two largest economies.

US 30 - Cash

By Margaret Yang in Singapore

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