Bonds rallied and SoftBank shed as much as 10% as data centre oversight fears took hold
American voters handed Democrats majorities in both the US Senate and the House of Representatives on November 3, a result Reuters reported sets up political gridlock for the remainder of US President Donald Trump’s final term.
Artificial intelligence shares led the first market reaction, falling across Asia before European and US futures recovered.
US stock futures fell by as much as 2 percent overnight, Reuters reported.
The Financial Times reported Japan’s Nikkei 225 dropped 1.4 percent and South Korea’s Kospi fell as much as 4 percent before recovering to trade 0.6 percent higher.
SoftBank, which holds a roughly 13 percent stake in OpenAI, fell as much as 10 percent before paring losses, according to the FT.
Samsung Electronics and SK Hynix declined 0.7 percent and 0.1 percent.
“The sell-off in Asia today is because of AI,” Alicia Garcia-Herrero, chief economist for the Asia-Pacific region at Natixis, told The New York Times.
Opinion polls have shown Democratic voters favouring more control over AI, and investors expect a Democratic-controlled Congress to apply more scrutiny to the sector, Reuters reported.
By the European morning, MSCI’s All-World index was up 0.13 percent and Europe’s STOXX 600 was up 0.5 percent, Reuters reported, with US stock futures edging into positive territory.
The yield on the 10-year US Treasury note was down three basis points at 4.92 percent, after falling as much as six basis points to 4.89 percent overnight.
“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,” Prashant Newnaha, senior rates strategist at TD Securities in Singapore, told Reuters.
The US dollar weakened broadly, leaving the euro up 0.4 percent at US$1.133 and the pound up 0.5 percent at US$1.348, Reuters reported.
The dollar fell 0.6 percent against the Swiss franc to 0.8163 and 0.4 percent against the yen to 158.12.
Deborah Cunningham, chief investment officer for global liquidity markets at Federated Hermes, told Reuters that Democrats “pulled off a double victory in the US midterm elections that few saw coming at the onset of the year.” Cunningham said the result leaves the federal government divided on most issues.
Kristina Hooper, chief market strategist at Man Group, told the Financial Times the margin removed a tail risk. “This is a resounding blue sweep that should preclude any material challenge to the election results,” she said.
Priya Misra, a portfolio manager at JPMorgan Asset Management, told the FT the standard read on divided government may not hold. “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,” she said.
Shares in Tesla and SpaceX fell around 4.5 percent to 5 percent on Europe’s Tradegate platform, against declines of around 0.3 percent to 0.9 percent for other large technology stocks, Reuters reported.
Tuesday’s US close, before results, had the S&P 500 up 0.36 percent at 7,568.92 and the Nasdaq Composite up 0.83 percent at 25,372.01, with the Dow Jones Industrial Average down 0.38 percent.
Apple fell 1.9 percent after warning that memory chip costs would keep rising and pressure its holiday-quarter gross margin.
Brent crude was down 0.4 percent at US$103.17 a barrel on Wednesday, after a four-week low in the previous session.
