U.S. midterms fallout in focus; Qualcomm shares slip - what’s moving markets

 Futures linked to the main U.S. stock indices hover around both sides of the flatline, as investors digest a major Democratic victory in the American midterm elections and begin looking ahead to the release of key employment data later in the week. Chipmakers in the U.S. and Asia retreat amid expectations that Democrats could increase regulatory scrutiny on the artificial intelligence industry, while Qualcomm shares fall on weak smartphone chip demand. 

1. Futures mixed

U.S. stock futures were mixed on Thursday. By 03:03 ET (08:03 GMT), the S&P 500 futures contract had dropped by 15 points, or 0.2%, Nasdaq 100 futures had declined by 289 points, or 1.0%, and Dow futures had increased by 169 points, or 0.3%.

The main averages on Wall Street rallied on Wednesday, with traders attempting to gauge the implications of the midterms, which will see Democrats gain control of both chambers of Congress starting in January. Some analysts suggested that political gridlock -- with Republican President Donald Trump and a Democratic Congress checking their respective agendas -- can reduce the risk of policy surprises, providing a modicum of stability for financial markets.

Meanwhile, oil prices declined on hopes that the U.S. and Iran are now more likely to find a diplomatic resolution to their war, which could improve the outlook for inflation and lessen the need for the Federal Reserve to aggressively ratchet up interest rates, analysts at Yardeni Research said in a note.

They added that megacap tech profits and free cash flow may increase if Democrats attempt to slow the rapid development of artificial intelligence, while fewer AI-related bond issues "would also help keep a lid on bond yields."

"Financial markets put a positive spin on the blue wave," the Yardeni analysts said.

2. Chipmakers decline

Yet the prospect of a decelerating AI build-out weighed on U.S. semiconductor stocks overnight, initiating a selloff that bled into chipmaker-heavy indices in South Korea and Taiwan.

AI chip giant Nvidia was slightly lower in extended-hours trading, as were peers Advanced Micro Devices and Intel.

Shares of memory-chip titans SK Hynix and Samsung Electronics in South Korea slipped sharply. In Taiwan, Foxconn Technology Group, the world’s biggest contract electronics maker, slumped by more than 3%, while top contract chipmaker Taiwan Semiconductor Manufacturing Co. fell by 0.88%.

Analysts have fretted that Democrats could use their newfound influence in Congress to pursue greater regulation of the AI industry, scrutinizing the proliferation of massive data centers, in particular.

Democrat Gina Hinojosa’s election as governor of Texas, where a number of large-scale data center projects are planned, may also be a precursor to more stringent data center rules in the state, analysts at Macquarie Group said in a note.

3. Qualcomm slumps on weak smartphone chip sales

Elsewhere, shares of Qualcomm tumbled by more than 8% in after-hours trading, as an upbeat forecast for the chipmaker’s data-center unit was offset by underwhelming sales of its smartphone chips.

Revenue from the handset chip division sank by 26% to $5.14 billion in the fourth quarter, missing expectations of $5.25 billion, according to Visible Alpha projections cited by Reuters.

Data from Counterpoint Research has shown that global smartphone shipments fell by a fifth in the September quarter -- dented in part by the AI data center build-out, which has caused a surge in memory-chip costs that have pushed up phone prices.

Qualcomm CEO Cristiano Amon flagged in an interview with Reuters that Android handset sales had bottomed out, but were beginning to edge back up again.

4. Brent hovers around $95 a barrel

Oil prices largely steadied just above $95 a barrel on Thursday, after plunging more than 8% in the previous session, as investors considered the possibility that the Democrats’ sweeping victory could raise pressure on Trump to end the war with Iran.

Brent crude futures settled down $8.98, or 8.7%, at $94.62 a barrel on Wednesday, while U.S. West Texas Intermediate (WTI) crude fell $7.97, or 8.3%, to $88.12. Both benchmarks settled at their lowest levels since August 31.

The selloff followed a slew of Democratic victories in both the House of Representatives and Senate, boosting expectations that a Democratic-controlled Congress could constrain funding for military operations and push the Trump administration towards a negotiated settlement in the Middle East.

Trump acknowledged that the war with Iran had contributed to his party’s electoral defeat, while Vice President JD Vance also questioned the conflict’s political and economic costs.

Investors widely interpreted the election outcome as potentially increasing the likelihood of de-escalation, which could eventually allow more oil to flow through the Strait of Hormuz, a critical shipping route for global energy supplies.

5. Bank of England decision ahead

The Bank of England is anticipated to lift interest rates on Thursday for the first time in more than three years, with policymakers aiming to corral inflationary pressures sparked by the Iran war.

Pressure on the BoE’s Monetary Policy Committee to increase rates by a quarter of a percentage point has risen in recent months. Inflation in the United Kingdom has remained stubbornly elevated, accelerating to an 11-month high of 3.5% in September, reflecting a jump in energy prices caused partially by ongoing supply constraints out of the Middle East.

Given that inflation is now well above the BoE’s target level of 2%, the central bank is tipped to react by increasing rates both this month and possibly more next year.

(Reuters contributed reporting)