Macro Bites – US Treasury Bonds Rally After Democrats Win Control of Congress

The Democratic Party won a decisive "blue wave" victory in the U.S. midterm elections, capturing control of both the House of Representatives and the Senate.  Political analysts attribute this sweeping victory to voter dissatisfaction with economic factors such as inflation and the elevated cost of living, alongside a wider public rebuke of President Trump's agenda. Reuters reports 70% of surveyed voters said they want Congress to provide more checks and balances on the President. In response, Trump asserted on Truth Social that because he was not personally on the ballot, the party underperformed, claiming he would have won in a landslide had he run.

Reuters expects Washington gridlock to reduce government spending, while AI regulation could slow growth, reducing the need for rate hikes. Bonds are coming out as the clear winner as markets put the AI trade on the chopping block and embrace the higher possibility that further tax cuts are put on ice and government spending slows.

China’s PBOC announced it will raise the foreign exchange reserve requirement ratio by 2 percentage points (from 4% to 6%) effective 11/15.  This policy change targets foreign currency deposits rather than local RMB deposits, specifically aiming to withdraw roughly $20 billion to $25 billion in U.S. dollar liquidity from the domestic banking system.  The policy change is intended to act as a macroprudential cooling mechanism (rather than direct intervention) to slow the yuan’s sustained rally (+4% vs. USD in ’26).

Venezuela is in advanced negotiations for a second major shipment of aluminum to the U.S. under a trade-revival initiative brokered by global commodity trading house Mercuria Energy Group and private mining investors Heeney Capital.  Terms will likely be similar to the 15kt cargo that arrived in New Orleans in late Sept., with the new shipment anticipated to depart Venezuela’s state-owned smelter CVG Venalum by year-end.

The WSJ reports labor’s share of U.S. GDP has dropped below 50% to just 49.9%, the lowest since records began in the ‘50’s, and down from an average of 56% between 1970 and 2010.