The Democratic Party's sweeping victory in the US midterm elections triggered significant shifts in global markets. The US dollar weakened against all major currencies, while the yield on 10-year Treasuries dropped five basis points to 4.92 per cent. Stocks showed little change, with futures for the S&P 500 and Nasdaq 100 stabilizing after earlier declines. Europe’s Stoxx 600 rose 0.4 per cent, while Asian equities fluctuated.
Investors initially viewed the Democratic win as a potential challenge for stocks due to anticipated stricter regulations, especially for high-growth technology and artificial intelligence sectors. However, Treasuries could benefit from political gridlock, which might curb further tax cuts and government spending, easing concerns about federal borrowing. Democrats secured key victories, flipping at least seven Senate seats and winning House races in traditionally Republican districts.
Analysts noted that political gridlock could reduce the likelihood of significant fiscal expansion, potentially supporting equities. Florian Ielpo at Lombard Odier Investment Managers suggested that the fundamental economic backdrop remains strong, with US growth solid. George Efstathopoulos at Fidelity International advised trimming defensive positions to invest in technology stocks in Asia and adding exposure to India for diversification.
In currency markets, the New Zealand dollar gained 0.7 per cent against the US dollar, while the yen and euro each strengthened 0.4 per cent. David Forrester at Credit Agricole CIB highlighted that the US dollar’s weakness is tied to the AI boom, which could be stifled by Democratic policies. Bitcoin initially dropped 2.8 per cent on concerns about tougher scrutiny of digital-asset firms but later recovered.
Oil prices fluctuated after a two-day decline, with Brent trading near $104 a barrel and West Texas Intermediate around $97. The uncertainty stems from mixed signals on US-Iran peace talks, with Iran’s national security chief calling the US response “not satisfactory.” Global benchmark Brent has surged over 70 per cent this year due to disruptions from the nine-month war in the Gulf.