Asian shares wobble, investors brace for US elections

TOKYO (Reuters): Asian shares wobbled on Tuesday, supported by Wall Street gains although sentiment was tempered ahead of the US midterm elections, the first major electoral test of President Donald Trump’s big tax cuts and hostile trade policies.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged down 0.1 percent, weighed by a fall in and Chinese shares and technology shares while Japan’s Nikkei managed to gain 1.0 percent.

Shares in Asia-Pacific Apple suppliers such as Taiwan’s Hon Hai Precision Industry, eased after Apple Inc lost 2.8 percent after the Nikkei newspaper reported that the company had told its smartphone assemblers to halt plans for additional production lines dedicated to the iPhone XR.

On Wall Street, the S&P 500 gained 0.56 percent, with financials such as Berkshire Hathaway supported by strong earnings.

Ahead of Tuesday’s US elections, investors generally expect opposition Democrats to take over the House of Representatives while Trump’s Republican Party is tipped to retain the Senate.

While political gridlock between the White House and Congress could hinder Trump’s pro-business agenda and raise political instability, including hearings centring on the administration, some analysts say such an outcome may have already been priced in by investors.

If the Republicans retain their House majority, global stocks are likely to rally on hopes of more tax cuts.

Trump said last month his administration planned to produce a resolution calling for a 10% tax cut for middle-income households.  “But further tax cuts would boost already large fiscal deficits and push the 10-year US Treasuries yield above its October high almost instantly. Given rises in US bond yields triggered a correction in equities last month, any rally in stocks is unlikely to last long,” he added.

The 10-year US Treasuries yield stood at 3.203 percent, maintaining most of its gains following Friday’s strong US jobs and wage data and staying not far from its 7 1/2-year peak of 3.261 percent hit on Oct. 9.

“Global equities have recovered after their fall in February, which was triggered by rise in US yields. But this time a recovery will likely be capped because now markets do not have the support they had back in February from tame inflation and the economic boost from Trump’s tax cuts,” said ShujiShirota, head of macro-economic strategy at HSBC in Tokyo.

Many investors also expect Trump to continue to take a hard line on trade, regardless of the outcome of the elections.

“The impact of trade war will start to appear in US economic data in coming months,”Shirota added.

But some other analysts noted that US equities tended to rally after midterm elections, possibly because markets tend to price in political risks ahead of the elections.

Moves in major currencies were modest.

The euro traded at $1.1408, about one cent above this year’s low of $1.1301 touched on Aug. 15.

The yen changed hands at 113.28 per dollar, near its three-week low of 113.385 marked last Wednesday.

The British pound touched a two-week high of $1.3070 and last stood at $1.3058.