A look at the day ahead in European and global markets
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By Wayne Cole, Chief Correspondent, Treasury
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So Democrats have taken the House and Senate in decisive fashion and markets in Asia have assumed this might not be good news for data centres, AI, crypto, healthcare and financials.
Wall Street futures led the losses, followed by tech in Japan, Taiwan and South Korea. European share futures are also down, maybe just in sympathy. The US dollar also suffered, while Treasuries rallied.
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Democratic US Senate candidate and Texas State Representative James Talarico reacts after his victory in the US midterm elections during an Election Night rally, in Austin, Texas, US, November 3, 2026. REUTERS/Mike Segar
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The reasoning goes that Democrats will favour more regulation of AI and data centres, which had become politically toxic in many races in recent months. Analysts note actually passing regulation will be tough given President Trump has vowed to veto any bills and the Democrats do not have a veto-proof majority in the Senate.
However, Democrats have also taken a surprisingly large number of governorships, which will give them more power at the local level to put hurdles in the way of data centre builds, along with more rules on water and power requirements.
In particular, analysts were concerned the flip of the Texas governorship could really hit the massive expansion of data centres in the state.
When the Democratic majority takes over in early January, analysts assume they will launch a round of investigations into the Trump administration, the Iran war, tariffs, immigration policy and plenty of other policies. As JPMorgan carefully noted, there would be 'investigation risk' for business leaders tied to Trump donations including MegaCap Tech.
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For bond markets, the early assumption was that the election result might limit further government deficit spending, including on defence.
Democrats do favour restoring spending on health and food stamps, though again that could be vetoed by Trump. It just so happens, the Treasury refunding announcement is due later Wednesday and the market has been looking for less borrowing at the longer-end.
More hurdles to data centres would also throw a spanner in the major engine of U.S. economic growth right now, which might lessen inflationary pressure.
That helped lift Fed fund futures, which took about 6 basis points of hikes out from next year. Two-year yields were down almost 8 basis points at a two-month trough of 5.5458%.
In other markets, the drop in yields combined with the paring of rate hikes to push the dollar broadly lower, mainly to the benefit of the yen, euro and Swiss franc.
Oil prices are also down, perhaps on concerns Trump will renew strikes on Iran now the midterms are over and his domestic policy options will be limited by a Democratic House.
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Key developments that could influence markets on Wednesday:
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- EU CPI and US ISM for October, US trade balance for September
- Riksbank policy decision
- ECB chief economist Philip Lane speaks
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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