SYDNEY (Reuters) – Asian markets leaned towards a Democratic victory in pivotal senate matches on Wednesday as government bond yields hit 1% for the first time in 10 months based on expectations of more debt-funded spending on COVID stimulus, infrastructure and renewables. energy.
Analysts generally assume that a Democrat-controlled Senate would be positive for global economic growth and thus most risky assets, but negative for bonds and the dollar as the US budget and trade deficits widen even further.
The direct consecutive elections in Georgia for the state’s two senate seats became necessary when no candidate in either race reached more than 50% of the vote in the November election.
The early voting results were still nail-bitingly close, and Democrats must win both games to gain control of the Senate, while just one win would keep Republicans in charge and likely lead to a stalemate in legislation.
Raphael Warnock, the Democrat who tried to sack Republican US Senator Kelly Loeffler, was in the lead in one of the two races, although no major news report had predicted a winner for either race.
Georgia Secretary of State Brad Raffensperger told CNN late Tuesday that vote counting would stop overnight and resume in the morning, with results not being known until noon at the earliest.
Democratic control of the Senate would give President-elect Joe Biden more room to pursue his ambitious agenda, including new stimulus measures and infrastructure spending.
It could also include higher corporate taxes and tougher regulations, policies not usually favored by Wall Street.
That, in turn, could increase regulatory risks for banks, healthcare, big-tech and fossil-fuel companies as it shrinks after tax revenues and EPS valuations.
The risk was enough to cause Nasdaq futures in Asia to fall 1.3%, while S&P 500 futures lost 0.5%.
10-year Treasury yields rose to 1.0020%, crossing the psychological bulwark of 1% for the first time since the market chaos of mid-March.
“The market should consider potentially much higher bond yields due to the deficit implications of Biden budgetary arithmetic, assuming he was able to execute his plans,” said Ray Attrill, head of FX strategy at NAB.
“That said, it is well argued that risk markets are enamored with the prospects of stronger fiscal support in 2021, setting aside concerns about higher taxes and regulation for the time being, but not indefinitely.”
Analysts believe a much-needed splurge on infrastructure would be positive for economic growth, jobs and sectors such as construction and transportation.
Still, it should be funded by borrowing more, a negative point for the dollar already cracking under the burden of rising budget and trade deficits.
“The US basic payments balance – the current account plus long-term investment flows – is the most negative in more than a decade, suggesting there is no underlying demand for dollars,” said Elias Haddad, a senior currency strategist at CBA.
Reporting by Wayne Cole and Kevin Buckland; Adaptation by Sam Holmes and Richard Pullin