US midterms are in just over two weeks, and this will impact who controls Congress. The general consensus from the polls indicates a split government, which would result in policy delays and limitations for the rest of the current presidency. There are three possible scenarios which markets are predicting: Republicans lose the House but retain the Senate, Republicans lose both House and Senate, Republicans retain both House and Senate.
Interestingly, there has been an increasing market for betting on elections in the US, and the number has gone up this year. There has been more than $220million in bets placed so far for the 2026 midterm elections, compared to $92million for the 2024 election. All outcomes are still possible but currently Polymarket has a 63% chance of Republicans losing both House and Senate, and a 9% chance of Republicans retaining both.
However, that’s not stopping the Trump administration from trying to win over voters.
One of the first things Trump promised was to pay $5,000 to every adult US citizen if the Republicans retain the House and Senate in November. This would be an estimated cost to the US government of $1.2-1.35tn. You would be forgiven for thinking this was paying for votes, but Trump quickly assured everyone it was a dividend because of his administration’s success. Not 100% sure where the President is getting his numbers considering the US government debt passed $40tn in the summer, US debt to GDP is currently 123%, the central bank is increasing interest rates again, and at the beginning of October US government bond yields were the highest they have been since 2002.
Something which we all maybe thought Trump might try to push before the November polls is a deal in the Middle East. Since the March escalation in the Middle East inflation has started rising again, and something which all Americans look at is the price of “gas” aka petrol and diesel. It doesn’t look like a deal in on the cards for the Middle East but just last week Trump announced an energy ceasefire deal between Russia and Ukraine, with a promise of Russian imports of diesel to ease prices for US consumers.
The deal the US has made with Russia temporarily lifts the sanctions for importing Russian diesel into the US. Last week my colleague Robert outlined how the diesel price is more complicated than the crude oil price, as it includes refining and shipping which has gone up year to date. Diesel has gone up around 120% YTD and “gas” has gone up nearly 95% YTD. So, the President in order to retain votes needs this to come down or at least stop going up, hence the deal with Russia.
Looking at the numbers I’m sceptical about how this will have a big enough impact on US diesel prices to make a difference, and I’m not alone in my thinking. The deal includes 300,000 tonnes of diesel now (2.25 million barrels), a further 500,000 tonnes in November, and 1m tonnes as soon as possible after that. The daily US diesel demand is 2.94 million barrels for context, and the total of the deal is less than four days demand for the US. You can see why analysts are concluding that it won’t move the price much.
Since the deal was announced, it has not been too popular in the US and Europe. Twelve US Senators have sent a letter calling for the President to withdraw his deal with Russia. The UK government has said “The UK’s position could not be clearer. We will continue working closely with international partners to ensure Ukraine has the military and financial support it needs to defend itself. We will also maintain pressure on Russia through the toughest sanctions regime ever imposed by the UK”. This sentiment has been echoed by other European nations like Italy and Germany, with Italian Prime Minister calling the deal a “very risky choice”. To further this, a ceasefire has not continued since the deal was announced, attacks are still continuing in Russia and Ukraine.
What does this all mean for markets? Well JPMorgan highlighted that political noise, despite being chaotic has been good for investors. It has meant governments are increasingly adding fiscal stimulus which has helped markets. However, if the Republican party lose even one of the House or the Senate it does make policy gridlock likely for the next two years and will increase the reliance of executive orders to pass legislation (which has already increased in Trumps current presidency). That policy delay and gridlock may very well end up impacting markets.
Emily Cave – Research Analyst
FPC26786
All charts and data sourced from FactSet
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