Standard Chartered: US Midterm Implications
The market reaction is harsh. NASDAQ futures are down 2.2%, S&P futures down 1.3%, DJ futures down 0.8%. US 2Y UST yields are down 8bps, and 10Y yields down 7bps. JPY and CHF are up about 0.7%. The weakest G10 currencies are CAD, NOK. NZD and AUD. which are flat to up 0.2%. There is a risk-off element on top of the Al/tech element. WTI is down by about USD 1/bbl. Some key governorships look likely to turn over, particularly those in Texas and Ohio. These will likely be viewed as anti-AI/tech moves, raising legislative uncertainty in key states such as Texas, where the largest number of data centre projects have been announced. Data centre construction alone has not been a predominant driver of overall economic growth, but the backlash may also raise the question of how much longer large AI capex spending can be sustained. The key asset market question is what the results tell us about the next two years. We emphasise this because big Democratic majorities will not likely produce veto-proof measures, so there may be noise but not much action with economic consequences. One question that will emerge is whether the debt ceiling negotiations (likely late 2027) and budget negotiations i
The market reaction is harsh. NASDAQ futures are down 2.2%, S&P futures down 1.3%, DJ futures down 0.8%. US 2Y UST yields are down 8bps, and 10Y yields down 7bps. JPY and CHF are up about 0.7%.
The weakest G10 currencies are CAD, NOK. NZD and AUD. which are flat to up 0.2%. There is a risk-off element on top of the Al/tech element.
WTI is down by about USD 1/bbl. Some key governorships look likely to turn over, particularly those in Texas and Ohio. These will likely be viewed as anti-AI/tech moves, raising legislative uncertainty in key states such as Texas, where the largest number of data centre projects have been announced. Data centre construction alone has not been a predominant driver of overall economic growth, but the backlash may also raise the question of how much longer large AI capex spending can be sustained.
The key asset market question is what the results tell us about the next two years. We emphasise this because big Democratic majorities will not likely produce veto-proof measures, so there may be noise but not much action with economic consequences. One question that will emerge is whether the debt ceiling negotiations (likely late 2027) and budget negotiations in December 2026 raise threats of government shutdowns and debt default. The USD may have further to drop in the very near term, but we are wary of seeing this as the USD turning point.
The market is still digesting the political surprise, so some of the USD weakness reflects uncertainty. The Fed is still likely to hike in December but may be more cautious on hikes subsequently. Our forecast is that rates remain flat after the next hike, and the market may head in that direction. Similarly, bond yields have come off sharply already, so short bond positioning is not nearly as extreme as when 10Y yields were near 5.25%.
Overall, we expect the market to spend some time assessing the implications of the vote, so in the near term we may see limited price action but with a modest tilt to lower yields and a weaker USD.