Global financial markets

Markets entered the election pricing a strong economy with elevated inflation. The Federal Reserve under Chair Kevin Warsh raised rates in September to a 3.75–4.00% range and held on 28 October 2026 by a 10–2 vote, saying inflation "remains elevated" (Reuters; Federal Reserve). The ten-year Treasury yield stood near 4.95% before the result, and the Nasdaq had fallen about 8% over the month on doubts about AI spending (Reuters; Reuters). The Supreme Court ruled on 29 June 2026 that Lisa Cook may remain a Fed governor while she contests her removal (SCOTUSblog).

The first-day reaction was benign. US stock futures fell as much as 2% overnight before recovering; Dow futures were up about 1.4% and S&P 500 futures about 1% by the European morning, the ten-year yield fell 3 basis points to 4.92%, the dollar weakened and the euro rose to about $1.13 (Reuters; AP). Investors read divided government as lowering the risk of further tax cuts and deficit expansion. Stephen Brown of Capital Economics said the size of the Democratic gains "does not change too much for the near-term policy outlook," given the filibuster and the veto, and ING's Carsten Brzeski framed the choice as whether Trump becomes "an angry duck" or "a tame duck" who slows down disruptive efforts (AP). Asian chip stocks fell on fears that Democrats will slow the AI buildout, with Kioxia down 5.4% and the Nikkei 225 down 1.4%.

Congress's main lever over financial conditions is the debt limit, which CSIS estimates could be reached in early to mid-2027 (CSIS). Republicans may try to raise it through reconciliation in the lame duck; if they do not, Democrats gain the strongest bargaining chip of the new Congress, with the usual risk of brinkmanship. Congress also gains protection for the Fed: the Senate confirms governors, and a Democratic Banking Committee will resist any nominee seen as compromising independence. Tariff revenue, refund liabilities from the IEEPA ruling and the cost of the Iran war feed the fiscal outlook.

The executive retains appointments, tariff policy and the fiscal stance through vetoes. The main tail risks for global markets are a government shutdown after 11 December, a debt-limit standoff in 2027, renewed escalation in the Gulf and a slowdown in AI capex. European equities rose on 4 November, with the STOXX 600 up 1.4% to a two-month high and the Swiss franc and yen gaining as havens (Reuters).