The markets are hoping for gridlock in the US midterms

It is in their interest for governments to be unable to do very much, writes Hamish McRae

A gridlocked Congress will, at the margin, lead to a tighter fiscal stance (Getty)

Gridlock is good. The midterms in the US will almost certainly deliver it, for whatever happens in the Senate, according to FiveThirtyEight there is only a 16 per cent likelihood of the Democrats retaining control of the House.

Polls get things wrong, but let’s assume they can’t be that wrong this time. Midterms are mostly about politics but they also have an economic spin-off. For the rest of the world, that spin-off is what matters. So, viewed from the UK and Europe, what does this mean?

The first thing to get out of the way is why financial markets like gridlock – why should they want governments to be unable to do very much? The best explanation is that neither companies nor markets like disruption. The planning horizon for any large corporation ranges up to 10 years, maybe more, and that is far longer than the political cycle in any regular democracy.