Wall Street is pushing higher, after the Republican’s Senate leader suggested the next Congress could take a bipartisan approach.

If that happened (and it’s a big if, given the last two years) it could help to get tax reform and infrastructure legislation passed.

Reuters has the details:

U.S. Senate Republican leader Mitch McConnell said on Wednesday infrastructure and healthcare would be on the U.S. Senate agenda in 2019, after Republicans widened their majority in the Senate but lost control of the House of Representatives in Tuesday’s elections.

Speaking to reporters, McConnell said senators would likely tackle Obamacare fixes and prescription drug prices, but that changes to Medicare and Social Security were unlikely.

Additionally, any new tax legislation would need bipartisan support, he said.

This is neat:

Duncan Weldon, of UK investment firm Resolution Group, suggests that the midterm election results could trigger a heightened trade war with China:

The Wall Street rally shows investors are relieved that the Democrats have control of the House of Representatives, and can block Donald Trump’s agenda.

Candice Bangsund, vice president and portfolio manager at Fiera Capital says investors would welcome a bit of gridlock, after two wild years in Washington:

“As widely expected, the US midterm elections have enabled the Democrats to take control of the House of Representatives, while the Republicans retained control of the Senate. This gridlock scenario has ramped-up the challenge for policymakers in seeking to pass major legislation.

That said, investor sentiment should be positive in general as a split Congress suggests that Democrats will be unable to roll back tax cuts or reinstate financial regulations, while the status quo for both the economy and the markets should ultimately prevail. As such, global equities are mainly higher this morning as the passage of last night’s events has likely removed an element of uncertainty from the marketplace.

My US colleagues have launched a new liveblog covering all the reaction to the midterms.... including this typically presidential threat from Donald Trump:

The US stock market is expected to rally when trading begins in around 70 minutes time.

The Dow is being called up around 215 points, or 0.8%, as investors take the midterm results in their strides.

Geoffrey Yu of UBS Wealth Management says investors may move money into riskier assets, now the US election is over.

“US stock futures edged up this morning, signalling the market sees Republicans as having marginally outperformed. For once, the polls were pretty much on track, but the pundits have been careful to manage expectations after 2016’s miscalculations, which on balance is probably a healthy development.

“From an economic standpoint, the more gridlock can be avoided the better. We will be interested to see whether certain sectors can benefit from this outcome, such as infrastructure.

Investors around the globe are relieved that the Republicans lost their grip on the lower House of Representatives, says Jake Robbins, fund manager at Premier Global Alpha Growth Fund.

A divided government has some positives for markets in that the more extreme policies of the Trump presidency will certainly see some push back which financial markets are clearly seeing as a positive.

The great fear was a surprise hold by the Republicans in congress which would have allowed Trump’s combative foreign and trade policies that have so unnerved markets to escalate further. Financial markets are breathing a sigh of relief that this is not the case. Those sectors hit hardest by tariffs such as basic materials, semis and industrials should see some respite, particularly given their underlying growth prospects have remained pretty good and after the selloff these sectors look attractively valued.

Political gridlock also means there’s little chance that Donald Trump’s original tax reforms are reversed.

Democrats on the Hill might want to repeal those tax cuts, but the Republican-controlled Senate surely won’t allow it.

There’s another reason that shares are rallying today [the cuts to corporate tax boost company profits].

Mickey Levy and Roiana Reid of Berenberg explain:

Financial markets are expected to take comfort with the split power in Congress: it was widely expected and will be perceived to allow for additional checks and balances on President Trump. The decent election results for Republicans in the Senate should lessen perceptions of a shift to the hard-left in the 2020 elections and ease concerns about a roll-back of pro-business policies.

They also believe we’ll see a lot more political rancour in Congress, but rather less meaningful legislation:

We expect even more Congressional dysfunction ‑ if that is possible ‑ to lead to more convolutions in the already dysfunctional budget process and more threats of government shutdowns.

Just in: The MSCI All-Country World Share Index, which tracks global stocks, has hit its highest level since 22 October.

Paras Anand of Fidelity International has an optimistic take - Donald Trump could work with the Democrat-controlled House to push through a new infrastructure-spending package.

He writes:

During the 2016 Clinton election campaign, infrastructure spend was high on the Democrat’s policy agenda (as it was for Trump). It is possible that with a bi-partisan focus on the pent-up need for domestic infrastructure investment, the Democrat view on the budget deficit may change from opposition (to tax cuts) to accommodation (spending on roads, hospitals, airports).

“Any development in this direction would further spur the overall economy, continue to push wages in an already tight labour market, and potentially challenge the current expectations around the Federal Reserve’s activity for next year. Most political events have an underwhelming economic impact - could the US midterms prove the exception?”

The outcome of the US midterms has been met with relief by financial markets. says Silvia Dall’Angelo, Senior Economist at Hermes Investment Management.

However, it may not last long..

Equities and bonds rallied, while the US dollar weakened. Following the correction in equities markets in October, the lift of the uncertainty surrounding the US mid-term elections paves the way for a solid performance of financial markets into year-end.

But that could change in 2019 as fundamentals look less supportive and prospects are more uncertain.

She also reckons Donald Trump will face a tougher task getting reelected in 2020, as a Democrat-controlled House may launch new probes into the president:

The most significant consequences of the US mid-term elections concern the domestic political landscape. Indeed, a divided Congress means President Trump will have a hard time to get his domestic policies approved; in particular, his promised new round of tax cuts will probably never see the light.

In addition, Democrats controlling the House will probably use subpoena powers to widen investigation into issues such as Russian interferences in the 2016 elections. All this will make for a challenging environment for President Trump to operate in, lowering his chances of winning a second term in 2020.

In the run-up to this week’s elections, Donald Trump floated the idea of a new tax cut for America.

The idea looked highly speculative at the time, and has now been washed away by the Blue Wave of votes for Democratic candidates.

Mohamed El-Erian, chief economic adviser at Allianz, says the tax cut simply won’t happen. That’s good for US fiscal stability, and means Treasury bonds are rallying today (a tax cut would widen the deficit, meaning more government borrowing).

Mike Dolan of Reuters has created a neat chart, showing how asset prices have moved since America went to the polling booths yesterday.

As you can see, global stock markets (in yellow) are higher, as are European shares (green) and most emerging market currencies (in orange).

The dollar (blue) and US bond yields (red) are both down since Tuesday morning.

This chart shows how the US dollar is the clear loser in the financial markets today, dropping against all major rivals:

The US dollar is extending its earlier losses, and now down 0.6% against other major currencies as a new 12-day low.

Bloomberg says:

With Democrats winning the House of Representatives majority and Republicans clinching control of the Senate, President Donald Trump’s party loses full control of Congress.

The results dim chances for any major fiscal initiative from the administration that might have triggered yield gains and hence a stronger greenback.

Mining giants are driving the London stock market higher, with Rio Tinto and BHP Billiton both up almost 3%.

They’re benefitting from the weaker dollar, explains Russ Mould, investment director at stockbrokers AJ Bell:

“A decline in the dollar following the US midterm elections has given a welcome boost to the mining sector as it will be cheaper for many foreign companies to buy dollar-denominated commodities.

There’s also some optimism that Donald Trump might show us the Art of the Deal, and reach a trade agreement with China soon.

Richard Carter, head of fixed interest research at wealth manager Quilter Cheviot, argues that the White House will want to boast about another win soon:

Tariffs implemented in September are due to rise from 10% to 25% on the 1 January 2019, and the President has also raised the possibility of putting tariffs on the remaining $250bn of Chinese imports that he has so far left untouched.

It may be that Trump adopts a softer stance in an attempt to get a deal on trade, thus allowing him to proclaim that he has ‘solved’ the China trade issue ahead of his 2020 re-election campaign.

You can keep track of all the midterm election results here:

Here are five lessons for investors from the midterm elections, from Neil Wilson of Markets.com:

• Gridlock tends to be good for the stock market, but in this case, it may not be as positive. To a degree the recent selloff in the stock market could be viewed as nervousness ahead of the mid-terms. Of course, the broader macro-economic outlook and US growth story is more important, but we must remember that the US boom is largely a function of Trumponomics – anything that curtails this will be at least mildly risk-off.
• A split Congress will, in all likelihood, not stop Trump from doubling down on tariffs with China. This could result in us getting all the anti-growth measures of Trump without more of the pro-growth reforms.
• Market impact may be relatively muted, although with a slight risk-off tone initially due to uncertainty about what it will mean vis-à-vis economic policy, tax cuts and deregulation. A lot would depend on how the Trade War progresses and how tax cuts 2.0 do in the face of a split Congress and use of executive orders.
• Likely bearish for the US dollar and so far seen some slight hints that this is playing out but for now the market reaction is not terrifically strong.
• It’s going to be harder for Trump to pass more tax cuts, and it may be that reform of Dodd-Frank will die. Pharma stocks may well do well as a divided house probably makes reform of drug pricing off the agenda.

Aaron Anderson, senior vice-president for research at wealth manager Fisher Investments, argues that the prospect of political gridlock is actually good for shares.

Legislation was hardly flying through Congress before midterms. Now with Democrats controlling the House of Representatives, the GOP increasing its majority in the Senate and President Trump in the White House, it will be nearly impossible to pass anything remotely controversial.

That will drive many people crazy, but markets love it. We should now have a long stretch where political risks go way down, which should be good for stocks.”