Tomorrow is a crucial day for not only the USA politics and economy but also global financial markets as US citizens vote during the midterm elections. Currently, the government has a slight majority in the House, which has helped in passing previous regulations and stimulus bills. But the Senate has been the most crucial battle that Democrats will want to maintain if not increase.
As per the betting trends, most crucial states like Pennsylvania and Georgia are tied with a very thin margin in favour of Republicans. In addition, the polls that a peak indicated 54 seats for Republicans in Senate. If true this will make the next two years of legislation and policymaking very difficult for the current government.
Though these are policy-related impacts and if the economic environment was stable then there would be less impact on the financial market. But given the current scenario where high inflation is leading to a high-interest rate that results in lower demand and even a recession with the risk of a financial crisis. The impact of such an outcome will be severe till the next general election which will be held in November 2024.
Thus, it is crucial for the outcome to be viewed as an increase in volatility ahead or not. The current S&P Volatility Index is already at 25 which is close to the recent low with an important technical indicator (RSI) at 32 the lowest since 29th March 2022 when VIX bottomed for the next six months.