Bangkok:SCB Financial Markets (SCB FM) at Siam Commercial Bank has assessed that the Democratic Party is likely to secure both houses of Congress in the upcoming US midterm elections. However, the impact on financial markets may be limited in the short term.
According to Thai News Agency, the medium- to long-term direction of the financial markets will depend on negotiations between the two parties on new measures affecting the US fiscal position. Patrick Pulia, Head of Financial Markets at Siam Commercial Bank, indicated that the election results could significantly influence financial market trends, particularly concerning the fiscal deficit. Recent market concerns have centered on whether the US can reduce its fiscal deficit amid record-high public debt, which has already led to a sell-off in US government bonds and fluctuations in the US dollar index.
If Democrats win both houses, they could more easily implement legislation, though challenges remain if Republicans use filibusters or if former President Trump vetoes policies. In one scenario, bipartisan compromise could lead to increased government spending and a higher fiscal deficit, raising bond yields and potentially strengthening the US dollar index. Alternatively, a lack of compromise could slow policy implementation, resulting in reduced government spending and a smaller fiscal deficit. This might stabilize or lower bond yields and weaken the US dollar index.
Mr. Wachirawat Banchuen, Senior Financial Market Strategist at Siam Commercial Bank, noted that the Thai baht might weaken if the US launches another attack on Iran, potentially increasing crude oil prices. Additionally, strong US economic indicators could boost US Treasury yields and the dollar index. Thailand’s trade balance shows a wider deficit, possibly due to unexpected import growth, which could pressure the baht, projected to range between 33.60 and 34.10 against the dollar this year and potentially weaken to 34.50 by mid-next year.
Regarding Thai government bond yields, a slight downward trend is anticipated as the Monetary Policy Committee is expected to maintain interest rates, despite market expectations of a rate hike next year. A decline in US yields could also support decreasing Thai yields, with projections for 10-year bond yields ranging from 2.00-2.20% by year-end and 1.80-2.00% by the end of next year. Main risks include global geopolitical issues, such as tariffs, war, and political uncertainties in the US, Europe, and Thailand.