Visible Relief in the Indicators

On November 3, the CNN Fear & Greed index stood at 20.05. The next day, it hit 27.94 — a gain of nearly 7.9 points. The move coincides with the reaction to the midterm elections: Democrats took control of Congress, US futures rebounded, the dollar fell to a one-month low and Treasury yields retreated. Gold advanced, a sign that investors also sought safe havens.

The Logic of a Divided Congress

A Morgan Stanley IM strategist sums up the dominant reading: markets welcome gridlock and fear an overly powerful party. A divided Congress reduces the risk of abrupt shifts in economic policy, which may be enough to lift sentiment in the short term. A High Frequency Economics economist cautions, however, that Democrats do not hold a veto-proof majority. Their ability to act on the cost of living remains to be demonstrated.

Energy, a Persistent Drag in Europe

On the European side, the picture is less settled. According to Eurostat's flash estimate, euro-area inflation reached 4% in October, up from 3.8% in September. That is its highest level since September 2023. Energy is the driver, with an annual increase of 20.8% versus 18.9% the previous month, ahead of services (3.3%).

Core inflation held steady at 2.5%. For Ulrike Kastens of Deutsche Asset Management, this shows that pressures are not spreading to a growing number of components — rather reassuring for the ECB. She nonetheless expects headline inflation above 4% in the coming months. She also judges that the longer energy stays expensive, the greater the risk of second-round effects, and that the ECB's tightening bias is therefore justified.

Long Rates and Defensive Signals

That bias shows up in rates: the euro-area 10-year AAA yield stood at 3.35% on November 3. The gold/copper ratio came in at 8,850 the same day. It pits a safe-haven asset against an activity-sensitive metal, and its level is consistent with still-marked caution. But it is an isolated observation.

What the Data Cannot Tell Us

Several limits apply. Historical series for the AAA yield and the gold/copper ratio are unavailable: it is therefore impossible to say whether these levels are high or low relative to their trend. The link between the US vote and the index's jump is a matter of timing coincidence, not demonstrated causality. Finally, the vote also carries risks for certain sectors, particularly AI-related data centers, which may weigh on sentiment.

A Conditional Improvement

The index remains far below 50, the midpoint of its scale. Political relief played a role, but it does not offset the energy shock. As long as European headline inflation stays above 4% and the ECB keeps a restrictive bias, the sentiment rebound will depend on what the next data say about contagion into core inflation.

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