America has voted and investors are asking what the result means for the dollar, for rates and for the biggest IPO wave in history. In the Gulf, where the dirham is pegged to the dollar, what happens in Washington matters. Nic Puckrin, Macro and Cross-Asset Analyst and Founder of Coin Bureau, explains why the midterms reach Gulf investors through the dollar, interest rates and exposure to the American AI boom. He also looks at what the SpaceX listing tells us about appetite for mega IPOs and where crypto and digital assets stand after the vote.
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What the US Midterm Results Mean for Gulf Investors, the Dollar and Crypto
What matters most for investors, especially in the Gulf: who wins control of Congress, or whether it ends up divided?
It seems to be a Democratic sweep. We have seen the Democrats win both the House and the Senate, and it could expand further as more races are called through the day. The bigger picture is at the state level, because the Democrats also had big wins at governorship level and in state houses. A big one is Texas, which is important for AI data centres. In terms of returns, the best historical analogue is that the S&P 500 has averaged about 13.7% annually under a Republican president and a split Congress. In this case the Democrats control both houses. Trump can always veto things, but there will be cohesion between the Democrats on the Hill. The one good thing is that markets do not like uncertainty, and here we have certainty in the results, without a long drawn out process of counting for weeks. There is still something hanging over this, which is any renewal of fighting in the Middle East. That has been hanging over markets for the past few weeks, specifically around what could happen after the midterms.
Gulf investors hold a lot of dollar assets. Why does the US midterm matter to them?
It impacts the dollar. The dollar has weakened this morning on the back of this, and as a pegged currency, it weakens the purchasing power of the dirham. There are also questions about exposure to America's AI boom for a lot of Gulf investors and sovereign wealth funds, and about the strength of the dollar and the dirham and what they can buy in terms of shares of American AI companies. Then there is how the results affect American monetary and fiscal policy: what it means for trade restrictions and spending, and how that affects the dollar, capital flows and the price of oil, which is one of the biggest exports from the Gulf region.
UAE interest rates follow the Federal Reserve. Does this election change the path for rates?
Not immediately. We have the nonfarm payrolls numbers coming out on Friday, which will show how the job market is looking, one of the two parts of the Fed's dual mandate. Currently, market expectations are for an additional rate hike in December. If rates go up in the US, because the dirham is pegged, the UAE also imports the Fed's monetary policy, so there is likely to be a hike in rates here as well. The main thing that could change the rates path is fiscal policy and the gridlock in Congress, with questions about deficit spending and inflation that could affect Fed votes at that meeting. But right now the market has coalesced around an additional rate hike in December.
SpaceX raised 75 billion dollars in June, the largest IPO ever. What did that tell us about the appetite for big listings?
There was an insatiable appetite at that point. It was 75 billion dollars initially and then raised to 85 billion after the over allotment, and the market absorbed it. But just because the market was able to absorb the SpaceX IPO three or four months ago did not automatically mean returns for investors. It listed at about 135 dollars a share, got to a high of about 200, and people may have piled in at that point, but it is now back at 141. In terms of actual return for investors, it has not been that stellar. The question going forward is what that means for the appetite, because post midterms, capital flows and the question of whether the AI trade is sustainable are impacting investors' asset allocation decisions, especially for these new mega listings.
Where does crypto sit in all of this?
On the regulatory and legislative side, the crypto industry did suffer some losses. The industry spent a lot of money trying to beat back the challenge from Sherrod Brown, one of the anti crypto senators, and his election to the Banking Committee is going to slow any crypto legislation and regulation. There are also going to be investigations into crypto fraud over the rest of Trump's term, which could impact sentiment. But in terms of price action, Bitcoin has kind of shrugged it off. It fell initially, but it is back up again. We need to differentiate between Bitcoin and altcoins. I think things are generally going to be negative for altcoins because of these questions around regulation and investigations. Bitcoin itself is a different kind of asset. It is digital gold, and deficit spending is likely to continue, especially in the new year.