TOKYO: Global stock prices slipped and bond yields rose on Wednesday as investors braced for the prospect that Democrats could win both seats at stake in a US Senate run-off election in Georgia, handing them control of the chamber.
Along with their narrow majority in the House of Representatives, a ‘blue sweep’ of Congress could usher in larger fiscal stimulus and pave the way for President-elect Joe Biden to push through greater corporate regulation and higher taxes.
Broadcaster NBC called one of the races for Democrat Raphael Warnock, unseating incumbent Kelly Loeffler, while Democratic challenger Jon Ossoff held a slim lead over Republican David Perdue in the other with 98 per cent of votes counted.
“With Biden proposing to reverse President Donald Trump’s tax cut, increase the minimum wage, and strengthen oversight on various industries, some might argue that his agenda is not particularly market-friendly’’, said Vasu Menon, investment strategy executive director at OCBC Bank in Singapore.
Futures for the S&P 500 fell 0.8 per cent, while Nasdaq futures shed 1.6 per cent on fears Democrats could pursue tighter regulations on big tech firms.
Other industries, such as banks, oil and gas and healthcare, could come under heavier scrutiny, while infrastructure and alternative energy sectors could benefit.
Japan’s Nikkei fell 0.4 per cent while MSCI’s index of Asian-Pacific excluding Japan erased earlier gains to trade flat.
European stocks are on course to rise in a catch-up with rebound in Wall Street shares overnight, with European stock futures trading 0.5 to 0.7 per cent higher.
The 10-year US Treasuries yield rose above 1 per cent for the first time since March, on expectations of larger government borrowing under a Senate where Vice President-elect Kamala Harris would become a tie-breaker.
“US bonds’ reaction reflects growing wariness about Democrats’ victory in the runoffs’’, said Shogo Maekawa, global market strategist at JPMorgan Asset Management.
“It is also natural for stocks to fall near-term as there could be tax hikes and tighter regulations on big techs and so on. But on the other hand, there should be positive factors as well, such as more stimulus and further infrastructure spending.”
Vishnu Varathan, economist at Mizuho Bank in Singapore, expects the falls in shares to be short-lived.
“My suspicion is that the immediate knee-jerk reaction would be a slightly stronger dollar and a slight setback in equities, because people are still sizing things up’’, he said. “I don’t think this is a trade that markets will continue to chase and extend.” — Reuters
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