SYDNEY (Reuters) – Asian markets leaned toward a democratic victory in crucial Senate tenders on Wednesday as Treasury yields hit 1% for the first time in ten months ahead of expectations of more spending funded by the US debt in COVID incentives, infrastructure and renewable energy.
Analysts generally assume that a Democratic-controlled Senate would be positive for global economic growth and therefore for most risky assets, but negative for bonds and the dollar as the trade and budget deficit of the United States increases even more.
Georgia’s face-to-face elections for the two state Senate seats became necessary when no candidate in either race surpassed 50% of the vote in the November election.
The first results of the vote were still very close and Democrats must win both contests to take control of the Senate, while only one victory would see Republicans continue to lead and likely lead to a legislative deadlock.
Raphael Warnock, the Democrat seeking to oust U.S. Republican Sen. Kelly Loeffler, took the lead in one of the two races, though no major news outlet had projected a winner for either contest.
Georgia Secretary of State Brad Raffensperger told CNN on Tuesday that the vote count would stop overnight and resume in the morning, with unknown results until noon.
Senate democratic control would give more room for President-elect Joe Biden to act on his ambitious agenda, which includes new incentives and infrastructure spending.
It may also include higher corporate taxes and stricter regulations, policies that typically do not favor Wall Street.
In turn, this could increase regulatory risks for banks, healthcare, high-tech and fossil fuel companies, while being applied after tax benefits and EPS valuations.
The risk was enough to see Nasdaq futures fall 1.3% in Asia, while the S&P 500 futures were down 0.5%.
10-year Treasury bill yields rose to 1.0020%, surpassing for the first time the psychological bulwark of 1% since the market chaos in mid-March.
“The market has to contemplate potentially much higher bond yields from the implications of Biden’s budget arithmetic deficit, assuming it proved to be able to implement its plans,” said Ray Attrill, head of strategy of NAB change.
“That said, a decent case is being made for risk markets to fall in love with the prospects of stronger tax support in 2021, leaving aside concerns about tax increases and regulation, but not indefinitely.”
Analysts assume that much-needed infrastructure waste would be positive for economic growth, jobs and sectors such as construction and transportation.
Still, it should be financed with more debt, a negative for the dollar that is already squeaking under the burden of growing trade and budget deficits.
“The basic U.S. balance of payments (current account plus long-term investment flows) is the most negative in more than a decade, suggesting that there is no underlying demand for dollars,” Elias said. Haddad, CBA currency strategist.
Reports by Wayne Cole and Kevin Buckland; Edited by Sam Holmes and Richard Pullin