US Elections and Employment Data Take Top Billing

Votes are being counted in the US midterm elections, an event markets have marked as pivotal on two fronts. First, the result will serve as an early marker for how President Trump chooses to progress the Iran conflict from here. Second, it carries the potential to create a legislative quagmire in Washington should the Democrats deliver the sweep of both House and Senate that polls have favoured.

The topic of AI data-centre buildouts has become something of a political football this election cycle. It remains to be seen whether the fervent opposition expressed on the campaign trail survives contact with the realities of office. A Democratic sweep of Congress would probably be the least desirable outcome for tech stocks and risk assets more broadly. It would likely usher in greater regulatory scrutiny of the AI industry and the data-centre expansion that underpins it, which is a clear negative for semiconductor names and the wider risk complex. A split Congress, or an unexpected Republican hold, would offer more policy continuity and prove less disruptive. A full Republican sweep would be the most pro-business and least regulatory outcome, and therefore the most supportive for risk assets, though it currently appears the least likely scenario.

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On the Iran front, there has been a school of thought that Trump could choose to up the ante with increased military strikes once the midterms are behind him. With the next presidential election not until 2028, the immediate political blowback would be lower. That line of thinking helped drive oil higher last week, with Brent briefly pushing past $118 a barrel. More recently, however, US officials including Secretary of State Marco Rubio and President Trump himself have been dangling the prospect of diplomacy rather than further kinetic action. That messaging has taken a decent chunk of the geopolitical risk premium out of the oil price. For now, traders are entertaining the idea that a peace deal could still materialise, even though the market has already endured plenty of false dawns on this front. The result is that oil has stepped a few rungs lower, with Brent now trading around the $103 mark. The path from here still hinges on the post-midterm signal from the White House. A genuine diplomatic turn would extend the downside bias in crude. Any hardening of rhetoric or return of military options to the table would likely trigger a swift re-pricing higher.