US Midterms Shake Global Markets, Impact Israel Aid
Translated & summarized from Calcalist by baba
US midterm election results are poised to shift control of Congress to Democrats, potentially impacting President Trump's agenda and global markets, especially AI stocks. Investors fear increased regulation of the AI sector, while bond markets may benefit from anticipated fiscal restraint. Separately, President Trump announced plans to end US aid to Israel by 2027, a move that, combined with domestic political issues and regional tensions, is pressuring the Israeli shekel.
The story in 5 lines · by baba
- Democrats gained control of the Senate and are close to a House majority in US midterm elections.
- Asian markets, particularly AI-related stocks, dropped significantly on election results and regulatory fears.
- President Trump announced plans to end US aid to Israel by 2027, shifting to arms sales only.
- A divided US Congress may limit fiscal spending, potentially slowing economic growth and inflation.
- The Israeli shekel weakened due to US aid concerns, regional tensions, and domestic political issues.
Preliminary results from the US midterm elections indicate a significant defeat for President Donald Trump and the Republican Party, with Democrats gaining control of the Senate and nearing a majority in the House of Representatives. This shift means Trump will face a largely hostile Congress starting in January.
Asian markets reacted sharply to the developing news. Tokyo's Nikkei index saw a substantial drop, particularly in artificial intelligence-related stocks like SoftBank, Advantest, and Tokyo Electron, as well as fiber optic manufacturers Furukawa and Fujikura. Taiwan's stock exchange also declined, while Nasdaq futures fell. Investors are concerned that a Democrat-controlled Congress might increase oversight of the AI industry and data center construction, a sector that has been a significant driver of US economic growth.
Goldman Sachs' AI stock index had already fallen significantly in October, highlighting existing market vulnerabilities. The potential slowdown in AI and technology investments, which contribute substantially to US GDP, could lead to broader economic deceleration. This might, in turn, temper demand and inflation, potentially easing pressure on the Federal Reserve to raise interest rates, which could be beneficial for American consumers.
Bond markets also showed initial reactions, with the yield on the ten-year US Treasury note dipping before recovering slightly. A divided Congress is expected to limit Trump's ability to pass expansive budget measures, potentially leading to more controlled deficits, which is generally positive for bond prices. However, factors like ongoing conflicts and oil prices remain significant influences.
Separately, President Trump announced in an interview that the US would cease its annual aid to Israel, totaling approximately $4 billion, starting in 2027, shifting to only selling arms. He claimed this was a long-standing agreement with Prime Minister Benjamin Netanyahu. The incoming Democratic-controlled Congress, which includes members opposing arms sales to Israel, could further complicate future US-Israel military relations, as evidenced by a previous vote to block bulldozer sales.
The Israeli shekel has also weakened, influenced by the potential halt in US aid, concerns over further escalation with Iran, and domestic political uncertainties surrounding election challenges. The period before the new Congress is sworn in on January 3rd may present an opportunity for Trump to engage in further military actions, particularly concerning Iran.
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