The outcome of the U.S. mid-term elections shouldn’t have much of an impact on Canadian markets, says TD Economics.

“Full control of the legislative branch will make it easier for the Democrats to pass legislation there, but ultimately to be enacted, these bills must be signed by the President. Any bill vetoed by the President would require a supermajority of two-thirds support in each chamber in order to override the veto, something the Democrats do not have. For this reason, any legislation which passes will require the broad support of both Democrats and Republicans,” TD explains. “In general, we do not see the election having a material impact on the Canadian economy.”

It notes that announced economic priorities for the Democrats have included raising the minimum wage from US$5.15 to US$7.25, allowing Medicare to negotiate directly with drug companies for lower prices, easing restrictions to get generic drugs on the market sooner, minor revisions to the tax code to reduce the tax burden on the middle class, maintaining agricultural supports in a bill due in 2007, repealing some subsidies to the U.S. oil industry, and expanding the use of alternative fuels. “These changes represent either a continuation of the status quo or are of limited economic impact at the macro level,” it says.

“The Democratic Party is likely to put greater emphasis on environmental programs which could have a potential impact on Canada, but significant changes would likely meet resistance from the executive branch. With Presidential elections two years away and campaigning likely beginning for that within a year, both parties will be keen to focus on posturing for the next election,” TD suggests.

“On the trade front, the Democratic Party has historically been very critical of trade agreements, especially their impact on American jobs. This sentiment is unlikely to be directed towards Canada, however,” it adds. “Rather, most of their recent attention has focused on the large U.S. trade deficit with China.” It says this will likely have no material impact on Canadian trade.

“The Democratically-controlled Congress will likely want to reinstate some social spending and would likely not want to be seen shutting down the federal government in order to limit military spending. There is also no need to vote on tax cuts which are not set to expire until 2010, though it is possible the parties would extend a limited number of those cuts – especially those targeted at the middle class – rather than waiting until after the 2008 Presidential elections. It would be in no incumbent’s best interest to allow a logjam to ensue coming into their 2008 reelection bids,” TD says.

“Control will not formally transition until January 2007. By that time, TD Economics forecasts that the slowdown in the U.S. economy will already be at or near its trough. The U.S. economy will continue to accelerate through 2007. But once again, the issues of importance for the American voters and the Democratic Party seem to be of limited importance for the Canadian economy. Therefore, we expect little to no impact on the Canadian dollar, Canadian financial markets, or our current economic forecast,” it concludes.