An expected "blue wave" in Tuesday's US midterm elections sent the dollar and global stocks lower, as traders bet Democratic victories could slow the AI infrastructure build-out central to economic growth. The election yielded a divided government, with Democrats holding a majority in both houses of Congress and Republican Donald Trump remaining president, a setup typically creating Washington gridlock but a boon to markets. However, investors said the magnitude of Democratic gains and big state-level victories in AI hubs such as Texas were likely to slow new data centre construction and bring new regulation.
"Normally a divided government is good for stocks as it means fewer policy changes, but this time, I wonder if the Democrats might push through AI regulation," said Priya Misra, a portfolio manager at JPMorgan Asset Management. "Given how bipartisan the pushback against data centres is and how much the economy and stock markets are dependent on AI, I worry that this is bad news for stocks."
Futures tracking the tech-heavy Nasdaq 100 index pointed to a 2.1 per cent drop when markets open in New York on Wednesday, while S&P 500 futures were down 1.2 per cent. Futures for the Stoxx Europe 600 fell 1.3 per cent. Asian stocks exposed to US demand for AI chips tumbled, with Japan's Nikkei 225 index sliding 4.5 per cent to its lowest level since May and South Korea's Kospi down 3.4 per cent. The dollar fell 0.5 per cent against a basket of trading partners' currencies to its lowest level in more than a month.
In the days leading up to the election, investors focused on state-level races in Texas and Ohio, where governors overseeing zoning and permitting can place moratoriums on data centre construction. Democratic wins in both states on Tuesday have forced traders to reckon with the possibility of a slowdown of the build-out.
Source: Financial Times Markets · Summarized by HeadlinesBriefing