Democrats’ capture of Congress raise expectations of tougher regulation of AI sector; US stock futures turn positive, reversing earlier declines

And Chris Turner, global head of markets at ING, says:

Investors will be parsing what this all means. For example, Gina Hinojosa won the Texas governor’s race on a ticket of wanting an immediate moratorium on data centre buildouts.

Given AI’s role in powering the US economy, speculation over whether a new Democrat Congress would slow AI capital expenditure plans briefly hit markets. The chip exporter-heavy stock markets of Korea and Taiwan were briefly down 3-4% overnight on news of the blue wave, but have since recouped all those losses.

For bond investors, the significance of the midterms is ultimately about what they mean for US borrowing. The result makes further significant fiscal expansion harder to deliver through Congress, potentially easing some of the pressure around government borrowing and Treasury issuance.

That could be supportive for US Treasuries, but it won’t determine the direction of yields on its own. Growth, inflation and the Federal Reserve remain crucial. If the economy slows and inflation continues to ease, there is a stronger case for Treasury yields to move lower.

Bonds are coming out ​as the clear winner as markets put the AI trade on the ​chopping block and embrace the higher possibility that further tax ​cuts are put on ice and government spending slows.