An Election Seen as a De-escalation Factor

Democratic control of the House and Senate changes the political calculus in Washington, but the vote hit markets mainly through its indirect effects. Donald Trump himself acknowledged it was "largely true" that the war against Iran had helped his opponents by driving up fuel prices. He added that he still held his veto power. For investors, the message is twofold: the electorate is punishing the economic cost of the conflict, and an executive now facing a hostile Congress has less room to prolong it.

That is the reading offered by several analysts: a broad Democratic victory tends to reduce the risk of an overly long conflict, and therefore of durably elevated oil prices, with possible positive effects on rates and, by extension, on equities. The reasoning is plausible, but it is a mechanism of probabilities, not an established fact.

From Crude to Long Rates: Transmission Through Risk

On the day itself, oil lost more than 8%, against a backdrop of signals pointing to easing tensions and progress in diplomatic negotiations in the Middle East. It would be excessive to attribute that drop solely to the election result: diplomatic signals contributed directly. But the confluence of the two events was enough to trigger a withdrawal of risk premium across a wide range of emerging currencies.

The channel is classic. Cheaper crude reduces expected imported inflation in consuming countries, eases the constraint on central banks and lowers the compensation demanded to hold emerging debt. The dollar thus fell 1.34% against the Mexican peso, 1.68% against the Chilean peso, 1.13% against the South African rand and 0.75% against the Colombian peso.

Brazil, a Laboratory for the Contagion Effect

The Brazilian market provides the clearest illustration. The interbank deposit (DI) contract maturing in January 2031 moved from 15.43% to 15.06%, and the January 2037 contract from 15.42% to 15.04%. At the shorter end, the January 2028 DI fell from 14.63% to 14.43%, and the January 2029 contract from 15.135% to 14.83%. Long maturities even dropped below the 15% threshold for the first time that week.

The move occurred on the day of the Monetary Policy Committee (Copom) decision, and was extended by the announcement of a speech by President Luiz Inácio Lula da Silva on Sunday, November 8, in which he would defend fiscal adjustment measures. The decline in Brazilian rates thus combines an external shock and a domestic anticipation, making it difficult to isolate the share strictly attributable to Washington.

Currency markets confirm that nuance. The dollar lost 0.64% to settle at 5.4518 reais, and the euro 0.35% at 6.1188 reais, but the Brazilian currency underperformed its emerging peers, a sign that distrust of the government's economic policy persists, even during a period of global calm.

The Blind Spot: the US Fiscal Trajectory

The relief felt on oil and rates says nothing about the sustainability of US finances. IMF projections for 2031 put US gross public debt at 145.03% of GDP and net debt at 116.84%. Only Japan, at 188.88% gross debt, fares clearly worse among the major economies in the file, ahead of Italy (135.58%), France (123.63%) and China (122.12%). By comparison, Germany stands at 75.59% and the United Kingdom at 100.20%.

US public spending is projected at 38.65% of GDP, less than the United Kingdom (43.32%), but for debt markedly heavier than that of many peers. Economist Ludovic Subran, for his part, expects a US budget deficit of 6.6% of GDP in 2027. Commentators also note that the risk of a persistent deficit is being obscured by post-election enthusiasm, even as sectoral rebalancing is expected.

A divided Congress is no guarantee of fiscal discipline: it can just as easily paralyze arbitrations as produce them. Nothing in the available evidence suggests the vote bends the debt trajectory.

Winners and Losers Less Obvious Than They Appear

Sectoral rebalancing is already visible. One market analysis argues that stricter rules on data center development could, paradoxically, favor digital giants by curbing the investment arms race. That thesis remains a hypothesis: on the same day, Oracle fell 1.55% to $124.24, after a 13.49% drop over five sessions and 35.85% since January 1. Macro relief is therefore not evenly distributed.

What the File Does Not Allow Us to Assert

Several elements call for caution. The file contains neither US Treasury yields, nor the performance of major indices, nor the absolute level of crude: the effect on US markets is not quantified. The drop in oil is tied to diplomatic signals and not explicitly to the vote. On the ground, Iran's Revolutionary Guard claims new strikes on tankers in the Strait of Hormuz, without independent verification, while Trump reaffirms his determination to see the war effort through to its end. Only one incident was confirmed by maritime operators, suggesting that geopolitical risk has not disappeared, it has simply shifted into expectations.

A Conditional Relief

What the figures allow us to conclude is limited but solid. The vote coincided with, and probably reinforced, a decline in the geopolitical risk premium: oil down more than 8%, long Brazilian rates below 15%, the dollar retreating across all emerging currencies. By contrast, US debt, projected at 145% of GDP in 2031, and a deficit expected at 6.6% of GDP in 2027, are a reminder that the main macroeconomic risk was not addressed at the ballot box. The relief therefore remains conditional: it will depend on confirmation of de-escalation in the Middle East, and on the ability of a newly divided Congress to produce something other than opposition.

This article was written with the assistance of artificial intelligence and verified by our editorial team.