US share markets surged as the results of the mid-term elections met market expectations, reducing event risk. Investors appear focused on the impact of lower interest rates for longer due to less potential for a hamstrung Congress to pass stimulatory fiscal policy. The weakening US dollar fits this take. As the world moves on the RBNZ this morning kept interest rates steady at 1.75%, and stated it expects that level to persist throughout 2019. The NZ dollar is holding higher ground.

Bond and commodity markets are pointing in the opposite direction to shares. Base metals and crude fell in overnight trading and bond yields generally edged higher. If share markets pricing reflects a Goldilocks economic environment, bonds and commodities are pointing to a higher inflation, lower growth scenario. The need to resolve these divergent views could generate surprising volatility.

Futures markets are pointing to a major opening lift for Asia Pacific shares. However caution around the future direction of US policy may see a more subdued session overall. Some analysts fear that the inability to pass legislation may see the White House concentrate on areas in which it can move unilaterally, such as trade. These could bring the China /US trade conflict back to centre stage.

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