The Democrats secured a decisive victory in the US midterm elections, winning both the Senate and House by large margins. This outcome has led to a slight weakening of short-dated US rates and the dollar, while equity futures have recovered from earlier losses fueled by concerns over potential slowdowns in AI data center construction. The initial market reactions, including drops in US two-year yields and the dollar against currencies like the Swiss franc and yen, have since reversed partially.
The market's focus now shifts to the implications of a Democrat-controlled Congress, particularly on AI-related capital expenditure and potential government shutdowns. Key figures like Gina Hinojosa, the new Texas governor, and Abdul El-Sayed, likely to win the Michigan Senate seat, could push a more progressive agenda. However, the dollar's weakness may be temporary, as investors consider the strong US economy and the Federal Reserve's potential for further tightening.
Today, the US Treasury's quarterly refunding plans and labour market data, including the ADP figure and the ISM services employment component, will be closely watched. In Europe, the eurozone's flash CPI for October is expected to show headline inflation at 4.0% year-on-year, with core inflation steady at 2.5%. Any upside surprise in core inflation could boost the euro. Meanwhile, the Swedish Riksbank is expected to raise rates by 25 basis points to 2.0%, with the tightening bias likely to remain in place.
The Swiss franc is in demand following a higher-than-expected October inflation print of 1.5% year-on-year, raising questions about the Swiss National Bank's tightening plans for 2027. In Central and Eastern Europe, the midterm election results are expected to have limited immediate impact, with a general sense of relief supporting regional currencies and lower rates. The Czech Republic's October inflation data and the National Bank of Poland's rate decision will also be in focus.