By Mike Dolan
Nov 5 (Reuters) – As has been the case so often this year, a huge move in crude prices dominated world markets on Wednesday as investors tried to figure out the implications of the US Democrats’ resounding sweep of Congress in this week’s midterm elections.
Brent crude prices, which had fallen sharply ahead of the polls, plummeted nearly 10% yesterday, dropping below $100 per barrel for the first time since September.
The thinking hinged on acceptance at the heart of the Trump administration that the Iran war, with the fuel price and inflation surge it triggered, was the main reason for heavy Republican losses.
Perhaps distancing himself from the president and with one eye on the 2028 White House race, Vice President JD Vance said the war was clearly responsible. Even Donald Trump agreed – although he claimed it was worth it.
Oil markets took that to mean there would be no re-escalation of the war soon from the US side at least, and the risk premium built into crude prices dissipated.
The oil price slide – which if sustained amounts to the biggest weekly drop since the pandemic plunge – pulled bond yields down across the world and lifted Wall Street stocks broadly on Wednesday. The S&P 500 had its best day in three months.
It papered over worries in AI-focused tech stocks that a Democratic-dominated Congress would push back against rapid data center building and pursue greater scrutiny and regulation of the sector. That saw US chip stocks fall further on Wednesday despite impressive earnings from AMD, and data center firms such as CoreWeave plunged again too.
Meantime, the big hyperscalers doing the spending – and raising heavy blocks of new debt again this week – caught a break from the thought of a slowdown and oil-aided relief on the outlook for borrowing costs.
But the big chip-heavy indexes in South Korea and Japan fell heavily again in Asia first thing on Thursday and the dollar is falling on the combination of reduced inflation and interest rate projections, as well as the AI jitters.
One of the big gainers from that dollar retreat this week has been sterling. The UK pound jumped sharply on Wednesday ahead of the Bank of England’s expected rate rise later today. A hike would be the BoE’s first in three years and it has lagged the other major central banks in tightening into the oil shock this year.
The BoE is also expected to revise up its UK growth forecasts. Perhaps the latest twist in the energy markets may see it turn more equivocal about the rate rise horizon ahead.
CHART OF THE DAY
The Bank of England is widely expected to raise interest rates for the first time in three years on Thursday due to mounting inflation pressures from the US-Iran war, taking a path already embarked on by other major central banks this year.
But plunging oil prices this week will encourage economists who think today’s UK hike could be “one and done”. The median of forecasts of economists polled by Reuters expect that today’s rise in BoE rates to 4% will be the last, with a reversal expected in 2028.
TODAY’S EVENTS TO WATCH
• US weekly jobless claims (8:30 a.m. EST), October Challenger layoffs (5:30 a.m. EST), corporate earnings including ConocoPhillips and Airbnb
• Bank of England interest rate decision (7 a.m. EST)
• Cleveland Fed’s Beth Hammack, Richmond Fed’s Thomas Barkin and Dallas Fed’s Lorie Logan speak
• ECB President Christine Lagarde speaks
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