Edited by Societe Generale Securities: "everything you need to know about the US mid-term elections"

What is the mid-term election in the United States? How do you choose?

The mid-term election is a congressional election between two presidential elections.According to the Constitution of the United States in 1787, presidential elections are held every four years, and congressional elections are held every two years. Congressional elections held at the same time as presidential elections are called election-year elections, and congressional elections between two presidential elections are called mid-term elections.

Statutory election process for the mid-term elections and re-election in 2018:The final election for the mid-term elections is scheduled for the first Tuesday in November. The election topics include the re-election of the House of Representatives, the re-election of the Senate, the special election, the gubernatorial election and the local council election. Among them, the House of Representatives re-election has a total of 435 seats, and the Senate re-election has about 35 seats. Members of the two councils are all directly elected.

2. What is the importance of the mid-term elections?

The function of Congress determines its significance to the implementation of Trump decree and even to seek re-election.

• Congressional legislative power has a direct impact on the efficiency of Trump's decree implementation in the second half of his term:According to the legislative process of the United States, a bill requires both houses of Congress to vote separately and reach an agreement, submit it to the president, and sign it before a law can be formed.If the president vetoes the bill, the two houses can override the president's veto by a majority (not abstain from voting), making the bill automatically become law.

• Congressional impeachment is the sword of Damocles over Trump:The U.S. Constitution stipulates that Congress has the power to impeach the president if he is guilty of "treason, bribery or other felonies and misdemeanors." From this point of view, whether Republicans can maintain their dominance in both houses of Congress, especially the House of Representatives, in the mid-term elections may directly affect whether Trump is impeached.

3. What is the situation in the mid-term elections?

• Take history as a mirror: although the Republican Party is dominant at present, the Democratic Party is slightly better from the historical results.

In terms of the overall historical range, the Democratic Party has a slightly better control of Congress than the Republican Party. The Democratic Party has a larger average advantage, and the Democratic Party as a whole has more advantages. In terms of time distribution, the two parties have alternate control of Congress, and the Republican Party has maintained its dominance in both houses since the mid-term elections in Obama's first term. Mid-term elections are often an important time for minority parties in Congress to attack the majority parties.For the Republican Party, although it is dominant at present, the Democratic Party still has a historical advantage and anti-super space, so it is a war that cannot be taken lightly.

• Mock exam: judging from the results of the primary election, the Republican Party has a temporary advantage, but the reference is limited.

The election situation of the primary election can be used as a "weather vane" of the final election, but since at least one party has no voting results for more seats, the primary election cannot fully reflect the election situation.Judging from the observable primary results, the Republican Party currently has a relatively dominant position in both houses of Congress.

• Institutional Forecast: Republicans may only save the Senate

Combining the current forecast results of various forecasting agencies, at present, the Republican Party is relatively ahead in the Senate and the Republican Party is lagging behind in the House of Representatives. As a result, according to the latest agency forecasts, the Republican lead in the Senate has been maintained, but there is a certain probability that it will lose the House of Representatives.

4. What impact will the mid-term elections have on the market?

If the Republican Party loses the House of Representatives, infrastructure will be more difficult to promote, which is not conducive to investment.

• Fiscal stimulus is an important reason for the outperformance of the US economy this year.On the one hand, for the resident sector, the tax cut reduces the personal income tax, increases the disposable income of residents and boosts consumption; on the other hand, for the enterprise sector, the tax cut reduces the corporate income tax and directly increases the after-tax income. stimulate corporate investment. At the same time, spurred by Trump's tax reform cash return policy, US multinationals remitted a large amount of cash in the first and second quarters of 2018, and corporate buybacks increased significantly, reflecting the good cash flow of local companies, which also supported investment.

• If the Republican Party loses the House of Representatives after the election, infrastructure promotion will be more difficult and may not be conducive to investment.While the positive effect of tax reform on the US economy provides support for the US economy, it also increases fiscal pressure on the US and, to some extent, reduces the fiscal space of Trump's other policy proposition-infrastructure. At present, both houses have not yet reached an agreement on the government budget for 2019, and the US government still needs a temporary appropriation bill to maintain short-term operation, which is in danger of being shut down at any time.

5. Risk tips:The election situation in the mid-term elections exceeded expectations and the impact of the global economy and financial markets

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