Nancy Pelosi’s impact on the global economy

It would seem that the markets ain't thrilled with the midterm elections: Global finance markets have wobbled on fears that a Democrat victory in the US Congressional elections could prompt less market-friendly policies in the world's biggest economy. Investors watched nervously as jubilant Democrats seized power in the US House of Representatives for the first time since 1994 and edged closer to taking the Senate, pushing European and Asian equities lower and weighing also on the dollar. European indices eased off fresh five-year highs struck the previous day, while Japanese shares tumbled by more than one percent, as investors also feared that a split in power in Washington would create legislative gridlock. "The European market started slipping lower (on Wednesday) with the Democrats taking power from the Republicans, traditionally thought of as more business friendly," said Michael Davies, an analyst with the Sucden brokerage firm in London. London's FTSE 100 index of leading shares slid 0.53 percent to 6,211.00 points, Frankfurt's DAX 30 index dipped 0.44 percent to 6,334.20 points and in Paris the CAC 40 index shed 0.47 percent to 5,412.18. The DJ Euro Stoxx 50 index of top eurozone shares lost 0.41 percent to 4,055.98 points. The US dollar meanwhile staged a slight retreat against the euro and the yen. "Although the outcome of US elections is unlikely to have a huge effect on the greenback, there are many that argue that if the Democrats win control of the House of Representatives, this will lead to a rise in protectionist policies or to political deadlock that could slow reforms," Davies added.It will be interesting to see how U.S. markets respond. UPDATE: Kevin Drum labels this kind of story, "Idiotic Conventional Wisdom Watch." He might be right -- but that conventional wisdom seems pretty widespread in the business press. Consider Neil Dennis, "Stock markets stall after Democrats win House," Financial Times: The win was seen as negative for equity markets, particularly if the Democratic Party also takes control of the Senate ? a result which still hangs in the balance. ?A [overall] win for the Democrats would be considered negative for stocks as it would likely result in a less business friendly environment,? said Matt Buckland, a trader at CMC Markets. US oil and drugs companies are expected to become subject to windfall taxes if the Democrats were to take control of the Senate, while companies are also likely to feel the pinch of a forecast rise in the minimum hourly wage. ?Unless we see an improvement in sentiment this could be the trigger to start booking some of the profits we?ve seen accrued since late September,? he added. Meanwhile, the dollar remained mired at a six week low against the euro as uncertainty over control of the Senate led to cautious trade. Or Wayne Arnold, "Asians wary of U.S. trade shift," International Herald-Tribune: The victory by the Democratic party in U.S. congressional elections appears to have left President George W. Bush hampered in his efforts to push through free-trade agreements being negotiated with several Asian nations and facing an antagonistic legislature bent on placing its own stamp on policies from trade to defense to stem- cell research - all with potential ramifications for Asia and the rest of the world.... But analysts, diplomats and economists in Asia said that the vote could have much greater consequences for the region, as they appeared to herald a further turn inward for the United States, away from globalization and engagement with Asia. "The message to the politicians is that we really don't want to get involved in foreign intrigues," said Tim Condon, an economist at ING Financial Markets in Singapore. "It reinforces this kind of populist thinking that there's only a downside to globalization." The turn in his party's fortunes will undoubtedly weigh heavily on Bush during his trip planned for this month to attend the Asia Pacific Economic Cooperation summit in Hanoi. Analysts said a preoccupation in Washington with domestic issues was likely to play into the hands of China, which has been boosting its own diplomatic profile in Asia and the developing world. Analysts said one of the clearest casualties of the Democratic victory was likely to be the Bush administration's trade policy. Concerns that Congress will get tougher on China's trade surplus by pushing it to revalue the yuan are likely to push the dollar down in global markets, they said, on expectations that China and other Asian exporters will allow their currencies to rise to deflect such criticism. "Democrats are seen as a bit more protectionist on that end," said Chua Hak Bin, an economist at Citigroup in Singapore. "Markets will expect a lot of these pressures to show up." Jacob Weisberg, "The Lou Dobbs Democrats," Slate: Most of those who reclaimed Republican seats ran hard against free trade, globalization, and any sort of moderate immigration policy. That these Democrats won makes it likely that others will take up their reactionary call. Some of the newcomers may even be foolish enough to try to govern on the basis of their misguided theory. This Reuters report is downbeat on the U.S. stock market -- though the actual market decline seems pretty picayune to me. On the other hand, this Forbes report attributes the equity market downturns to profit-taking rather than the Democratic takeover. I agree that the reaction of equity markets is probably nothing -- but the effects on trade policy are nothing to be sneezed at. UPDATE: Kevin Drum renews his ire at this kind of press coverage here -- he's got a decent case.