Oil Price Surge Threatens Trump's Election Prospects as Yen Appreciation Poses Global Risk

The oil price surge is putting pressure on Trump's midterm election prospects, while the yen's appreciation poses a global risk. The U.S., Japan yield spread divergence is correcting, which could drive up bond yields in Europe and the United States, and revive the VIX.

Brent crude oil prices remain near $110 per barrel with just seven and a half weeks left until the midterm elections. Since August, the Democrats' chances of retaking the Senate have risen from 41% to over 50%. Trump said oil prices would only fall significantly after the midterms, which may have reinforced market expectations of a prolonged conflict.

The yen's structural shift is sending ripples through global markets. TS Lombard argues that the return of Japanese capital is the key driver behind the yen's sustained strength, with its fair-value model pointing to a range of 130-140 for USD/JPY.