In an interview with ausbiz today, our Managing Partner, Paul Ashworth, commented on the rapid shift over the last 7 days in the US political and economic landscape occasioned by the Democrats taking control of the Senate (with the House of Representatives already secured).
The Democratic victory in both Georgia Senate seats now sees a clearer path for the Biden Administration to secure its outwardly stimulatory economic policies. It is not all plain sailing given procedural filibuster rules in the Senate which require a special majority for legislation to be considered. This can be circumvented once a year in significant budget legislation which would be likely in June/July. Following the Capitol Riot last week, there may also be greater scope for bipartisanship legislation, particularly with moderate Republicans (Romney, Collins, Murkowski).
Up and until a week ago, the transition process from Trump to Biden and Biden's ability to have his cabinet appointments confirmed looked to both have significant difficulties. With the Georgia Senate wins and the 'wash-up' from the Capitol Riot, the Biden Administration can now fairly seamlessly get its cabinet and key administration appointments confirmed by the Democratic controlled Senate. This will allow the process of effective government to occur more rapidly than would have likely been the case with a Republican controlled Senate.
These factors are pro-growth, with upside implications for growth and hence cyclical firms and a steepening long bond yield curve. So only a week into 2021, one of our major identified downside risks for market risk assets has shifted to the upside. Sustained fiscal stimulus looks decidedly more assured (though the Biden tax increases for households are far from assured).
— Watch the recorded session here.
— A key point summary can be read below.