Susannah Streeter, Chief Investment Strategist, Wealth Club
”The blue tsunami has barrelled in, sweeping away the Republican advantage in Congress and eroding Trump’s power.
The overwhelming rejection of the US administration’s policies by American voters doesn’t look set to provoke severe market upset Stateside. However, it triggered fresh falls in Asia as investors brace for a dent to the AI data centre build out which was such a key campaigning issue. The FTSE 100 started on the front foot with sentiment lifted by better than expected PMI manufacturing data, which came in at the strongest level since May. Crude prices have also edged back higher, as traders wait to see whether fresh attacks or renewed negotiations are the way forward in the Middle East.
On Wall Street, US futures are down but have recovered from deeper falls, as much of the uncertainty about the outcome of the polls has been removed. Republicans were forecast to be nursing losses, but the injuries run deep, with Democrats flipping red strongholds like Texas, Kansas, Ohio and South Carolina.
Democrats are taking control of both chambers of Congress, setting the scene for a bruising battle over spending priorities. They may push for greater healthcare spending and tougher scrutiny of Trump’s policies, while the President retains his veto and considerable powers over foreign and military policy. Trump may now be a lame duck President but he’s set to be an obstinate opponent, embracing the title of ‘Mr Veto’, making clear he is prepared to use his presidential powers to block Democratic legislation. There is a possibility that a Democratic-controlled Congress could force compromises and put some brakes on spending, but there is little sign of either party being prepared to take on the underlying deficit. Trump still seems intent on pursuing an expensive Middle East conflict, while the burden of debt interest and high spending continues to weigh on the public finances. Treasury yields have edged lower as investors pile into safe haven assets, but the longer-term concern remains that America’s debt mountain will keep growing, leaving the government needing to borrow ever more heavily.
On the flipside, Democrats are likely to push for greater regulation which could slow the AI juggernaut, potentially limiting inflationary pressures and lowering rate hike forecasts. With data centres such a huge issue on the campaign trail, and politicians on all sides urging restraint, it’s highly likely there will be further attempts to put the brakes on their expansion. It’s not simply nimbyism, but affordability concerns are front and centre, given that many voters blame data centres for higher power bills. There are growing concerns about the strain they place on already stretched electricity grids, and the environmental cost of powering these vast facilities. This could yet prove to be another big bump in the road for AI advances and profitability, particularly if tighter scrutiny makes projects more expensive or delays their completion.
And those fears have already helped reignite a sell-off in Asian markets, with technology stocks bearing the brunt of the losses. Semiconductor shares have come under renewed pressure, with investors worrying that this Democratic sweep will mean much tougher oversight of the AI industry and potentially slower expansion of the data centres, pushing down demand for chips. The election appears to have provided another trigger for investors to take profits, given that underlying doubts about the sustainability of the AI spending spree were already bubbling away.”
Feature image by Pexels
