Top of the Morning: Election Watch - Foreign capital, state capitals

Kurt Reiman · UBS Global Wealth Management

Congressional control is genuinely in play this midterm, with previously improbable Senate battlegrounds.

Kurt calls this midterm consequential because control of Congress is genuinely in play. Several Senate races that would have seemed improbable battlegrounds not long ago are now competitive. He uses this to argue that investors have good reason to watch Washington, while noting that the report's focus is on the effects beyond it.

“Control of congress is genuinely in play, and there are several senate races that would have seemed improbable battlegrounds not that long ago.”at 1:38

Kurt Reiman · UBS Global Wealth Management

White House keeps significant authority over trade and foreign policy under leading midterm scenarios.

Kurt argues that the midterm outcome will not hand Congress control over the policy areas that matter most to foreign governments. Even under the leading scenarios, the White House is likely to keep significant authority in trade, foreign policy, fiscal and technology policy. Even in a divided-government scenario, the executive branch still wields significant authority. Foreign governments are therefore assessing how durable and how direction-setting US policy will be, based on the first two years of the administration. Kurt's expectation is that the White House will keep substantial authority over trade and foreign policy regardless of the outcome, and that Congress's influence will be limited.

“Even under our leading scenarios, the White House is likely to retain significant authority in most of these areas.”at 2:26

Shane Lieberman · UBS

Democrats will likely flip North Carolina, leaving Republicans with a 52-48 Senate advantage.

Shane sees Democrats picking up North Carolina almost immediately, which leaves a 52-48 Republican advantage in the Senate. Democrats are mainly on defense in Michigan and New Hampshire, with Minnesota a third race to watch. Republicans are playing more defense than Democrats, and Democrats are on offense in states such as Alaska, Iowa, Kansas, Maine, Ohio and Texas. Democrats need a net gain of four seats to control the Senate. Shane also notes that Alaska's ranked-choice system could delay the outcome if the race comes down to it.

“I think Dems are gonna pick up North Carolina pretty much off the bat, and that leaves a 52 to 48 advantage for Republicans.”at 8:04

Kurt Reiman · UBS Global Wealth Management

Persistent US fiscal deficits are pushing up bond yields in European countries.

Kurt says European governments are assessing the implications of persistent US fiscal deficits and their possible impact on bond yields. He cites the fact that bond yields have risen in many European countries that are facing pressure. He presents this as a transmission channel through which US fiscal policy reaches foreign markets. The argument is mostly framed as a concern and is supported by an observed rise in European yields, not a detailed causal analysis.

“what are the implications of these persistent US fiscal deficits and the impact that that could have on bond yields? And we've seen bond yields rising in many European countries”at 4:37

Shane Lieberman · UBS

Over 160 statewide ballot measures, including a California wealth tax, signal future federal policy direction.

Shane argues that state-level policy matters beyond the states. There are over 160 statewide ballot measures across the country, and some are significant, such as a proposed wealth tax in California. Shane says states can act as laboratories and that UBS pays attention to these measures to see what signals they send for future federal policy. Across the states, roughly 6,000 legislative seats, about three dozen governorships and about 30 attorney general races are also up for election, and 19 governor races are open seats.

“I'm actually also quite interested in that there are over a 160 statewide ballot measures on ballots across the country, and some of them are really noteworthy like this wealth tax California.”at 6:15