AFS Markets Blog: Morning 04/11/2026

• Meanwhile in markets, punters give President Trump’s Waterloo moment in the midterms the collective shrug of the shoulders. Neither US Treasuries, equities futures, or the dollar are moving much on the Democrats trouncing the Republicans utterly and completely and taking overwhelming control of both the House and the Senate;

• Probably what matters most for markets is the fact that neither Trump nor the Republican are contesting the elections. As a matter of fact, Trump even gracefully accepted his and his party’s utter defeat. According to the wires, he congratulated the Democrats on a “good job” while deflecting responsibility for the rout. He also tied high gasoline and diesel prices – which has infuriated voters – to his fateful decision to go to war with Iran while maintaining the line that he would have attacked Iran regardless;

• I think the causes of the Democrats overwhelming victory are completely self-evident: stubbornly elevated inflation and the soaring cost of living. US voters sent Biden and the Democrats packing in 2024 over Biden-era inflation. Voters remembered the solid and low inflation US economy right up to the pandemic under Trump 1.0, handing him and the GOP an overwhelming victory two years ago. With his Iran war blunder, Trump ruined his own legacy. As a matter of fact, I think we will see a damnatio memoriae of Trump because of Iran. Just as President Bush Junior’s legacy will forever be tied to the Iraq quagmire. The Middle East truly is becoming the graveyard of US Presidents and their hubris;

• And speaking of Iran, I fail to see what Trump would gain by reaching a peace deal with the Iranians. If energy prices come down and inflation eases, that would only benefit the Democrats. At the same time, I think Trump now lacks the political capital to strike Iran. So, the path of the least resistance is for the conflict to be frozen. Iran will keep harassing commercial shipping in the Gulf and likely escalate if the US maintains its economic chokehold. That means energy prices won’t come down much further – if at all.

• Furthermore, if the Democrats still have this obsession with Russian President Putin as an evil mastermind scheming strategically in every corner of the world, odds of a peace deal in the Ukraine war must be pretty dismal. So, Ukraine will keep having an inflationary effect through both higher energy prices and fiscal spending (primarily over here in Europe) to sustain Ukraine;

• As a counterweight to the inflationary effects of high energy prices we might see the AI boom/bubble shifting gears lower. Cancelling data center construction means lower demand for chips and other computing hardware, electric equipment, construction materials and whatnot. So, lower economic activity and lower growth. However, I strongly suspect that AI equities and credit have priced in a large part slowing the data center rollout. Your average AI stock on our twenty-something market screener is down 33% from its peak. Unsurprisingly, we see Korean chip stocks move little on the elections this morning. Samsung and SK Hynix are only modestly lower in late session trading;

• At some point, the Dems must deliver on their campaign promises to lower the cost of living. We might see them trying to roll back Trump’s signature trade protectionism policies. That would benefit US-friendly exporters, like us hapless Europeans. Or the path of the least resistance: some kind of handout to help struggling households, which will only make matters worse. For households and the US and its dismal creditworthiness;

• As a macro tourist, where I do suspect we might see the market move is in renewables. Trump and the Republicans gutted climate policies. Which I am sure the Democrats will try very hard to reverse. Furthermore, as long as energy prices don’t rise much further, energy’s contribution to inflation will evaporate. And if AI does indeed slow, the Blue Wave trade would be to take some Fed rate hike bets off the table. A December Fed hike is inevitable, but for now pricing should reflect moderate odds of one more hike next year;

• Turning to some overnight market commentary, Brent crude futures at about $104 a barrel and Dutch natgas futures at 92.5 euros per MWh are near yesterday’s lows, when hopes of an Iran war deal were rekindled. The broad dollar is down modestly but already off the lows. EURUSD has rebounded notably, rising from around 1.118 yesterday to around 1.124 at pixel time. US Treasury yields across the curve are loitering near their lowest level in a month. Bund and OAT futures have opened flat, with Le Spread staying elevated but off the highs at 162bps;

• Looking ahead, key events today include the Riksbank interest rate decision, which consensus expects will be a quarter point hike. The US Treasury will publish its quarterly funding overview, which will likely result in lower issuance at the long end. The US ISM services PMI out at the usual time at 16:00 CET should show a flat reading of 54.7. Which is consistent with the US economy humming along nicely. Regarding US politics, we’re eyeing the December 11 deadline for the funding bill. Which the GOP-controlled lame duck Congress must pass to avert a shutdown the day after.

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