Any election in the United States is most likely among the most essential occasions in the contemporary world, as it determines what American policy will be in the next couple of years. Yes, U.S. elections are held every two years. A minimum of to Congress. Senators are chosen for a term of 6 years. And so the stars corresponded, which last week entirely re-elected Congress and a third of the senators. It can be said that in terms of value it is practically like the election of the president of the United States. Before the vote itself, everybody was simply arguing that the Democrats would win these elections. A various result was not even discussed. Well, since everybody was confident in the success of the Democrats, the media propaganda and misinformation actively discussed options for the subsequent advancement of events. Almost every publication mentioned the truth that the success of the Democrats will enable them to have a much greater opposition to the policy of Donald Trump, which includes obstructing much of his efforts. And this can result in a certain paralysis of the whole system of power in matters of managerial decision-making, which has unpredictable consequences. Financiers, opening up papers every early morning, clearly believed about how to plan their investments if the US federal government is unable to make the needed choices since of kids’s disagreements and grievances of Democrats and Republicans. Journalists were not the only ones who were scared by the public, given that particularly hotheads forecasted the imminent impeachment of Donald Trump, as if all Democrats were little children, who were only attempting to precise revenge on the culprit. Such a prospect does not fit into my head at all, because in the history of the United States this has actually never occurred. Murders of presidents have actually taken place, and even someone was elected to the presidency three times, however impeachment is something brand-new. And how to act in a comparable scenario is not clear to anyone. So financiers who were driven to panic were actively eliminating dollars.
However the results of the vote put everything in its place, and although the Democrats actually, as forecasted, got a majority in Congress, and for the first time in eight years, the Republicans have reinforced their control over the Senate. Such a building lowers the threats described above, given that the impulses of the kindergarten, which can now become Congress, will be restrained by rigorous instructors from the Senate. Obviously, nobody promises an easy life, and Trump will now have to put a lot more effort in pushing his initiatives. The worst-case scenario appears to have actually been prevented. As quickly as the vote count was over, the exhausted financiers returned to the dollar. Donald Trump will need to reckon with Congress, and to carry out his efforts, he will need to make concessions, and there is absolutely nothing much better than to further reinforce sanctions versus Russia, so that the kids of the Democratic party will be at least a little happy and gloated. Nevertheless, it threatens to develop into a radical degeneration of US relations with the rest of the world, if somebody loses control of the situation. After all, the Democrats have a long list of ideological enemies that require to be handled.
Extra assistance to the dollar was provided by the results of the conference of the Federal Open Market Committee, because in essence the Fed has actually withdrawn all concerns concerning the rate of boost in the refinancing rate. Let me remind you that after inflation in the US decreased, which came as a complete surprise to all those who did not monitor stocks and their endless growth, they started to argue that the Fed will undoubtedly be forced to reassess its plans. After that, a variety of representatives of the regulator have consistently mentioned that it is not needed to draw rash conclusions from a one-time decrease in inflation and it is essential to make sure that this process is sustainable. Such indications are not observed. Such arguments do not add optimism, particularly for those who prepare their investments for years to come. So, the text of the accompanying commentary clearly states that the Federal Open Market Committee sees no reason for issue and anticipates inflation to increase in the near future. In other words, there is absolutely nothing to worry for no reason, since the Fed means to continue to raise the refinancing rate, in accordance with the formerly laid out strategies.
Frankly speaking, against the background of such large-scale occasions, couple of people were interested in any macroeconomic stats. Anything about Brexit and Italy were momentarily forgotten. Yes, and some much less meaningful information that can take on the elections and the Fed meeting, did not come out. We can note the data on UK GDP for the 3rd quarter, which just confirmed the first price quote, revealed a velocity of economic development. As retail sales in Europe, the growth rate of which has actually slowed substantially. Additionally, it is so strong that even inflation is not compensated, so it is too early to hope that the ECB will choose to begin tightening up financial policy.
The elections are currently in the past, and it seems like you can when again return to worries about Brexit and European public financial obligation. However this week there is a lot substantial information that journalists with their scandals, intrigues and investigations simply have nowhere to turn. After all, in the United States there are information on inflation, which should reveal its acceleration from 2.3% to 2.5%, and if this is validated, any doubts about the Fed’s additional actions will be noted. And not only that inflation must accelerate, so the development rate of retail sales might increase, which will give the dollar even more confidence. Well, the cherry on the cake will be commercial production, which need to likewise increase and make an excellent conclusion of a cloudless image.
But Europe will have absolutely nothing to respond to, since inflation is most likely to stay the same, and the second price quote of GDP for the third quarter will only as soon as again verify the downturn in financial development. The growth rate of commercial production must decrease from a modest 0.9% to a practically invisible 0.3%. If we add to this the concern about the deficit spending in Italy and broaden it to consider the size of public debts of the euro area nations, the photo is quite unfortunate. The economy is decreasing, the ECB is pursuing an incredibly soft monetary policy and prints cash, the euro zone countries have a persistent budget deficit, and it is not clear how they will pay off debts. Specifically if Mario Draghi goes nuts and shuts off the printing press. So, despite the obvious overbought of the dollar, it deserves awaiting the decrease of the single European currency to 1.1175.
But the pound has a somewhat better outlook, as rather excellent stats are expected. In specific, inflation needs to speed up from 2.4% to 2.5%, which will increase the likelihood of raising the Bank of England’s refinancing rate prior to the conclusion of the Brexit treatment. However, with the “divorce” process itself, things are not so smooth, as Theresa May chose to ask Europe to hold off the processing date. The reality is that the prime minister can not agree on the arrangements of the contracts with the Parliament, which is plainly focused on the political elimination and means to put all the blame on her. And, honestly, the idea of postponing the date of Britain’s withdrawal from the European Union only shows the weakness of Theresa May’s positions, which foreshadows a political crisis and brand-new elections for the United Kingdom even before Brexit itself. And this makes the circumstance unpredictable. At least for investors. But the same financiers, in addition to inflation, will have another reason for happiness, because the growth rate of average wages, considering the premiums, can accelerate from 2.7% to 3.0%. This indication is extremely important for investors, as it shows the determination of employees to work more, and although they have to pay bonus offers for this, it still leads to savings on incomes, given that the bonus offer is still less than the income for another employee who would have to be worked with. It will not do without a negative in the type of retail sales, the growth rate of which ought to slow down from 3.0% to 2.8%, which is slightly more than the development of inflation. That is, the development of inflation does not cover the decrease in customer activity, and the earnings of business is lowered. The pound has all the requirements to decrease to 1.2775.
The material has been provided by InstaForex Company – www.instaforex.com