US Midterms, Energy, Central Banks, And Binance: Julius Baer / 3 November 2026

(MENAFN- Mid-East Info) COMMODITIES
Energy: High noon for the market fever? Borderless Finance. AI-Native.

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Norbert Rücker, Head Economics and Next Generation Research, Julius Baer

We have been struggling for a while to explain why oil trades above USD 100 and natural gas above EUR 90. Despite the frequent attacks on ships, Hormuz is largely open for trade, and storage levels look much more comfortable than feared, at least for crude oil. Energy prices seemed bloated by a significant risk premium and the fears of an immediate conflict escalation. Monday's sell-off seems to confirm this perspective. We have heard different arguments expecting an escalation, either before or after the midterms, and all have their merits. This week's elections could indeed be high noon for the energy market's fever. If escalation materialises, as partially anticipated by prices, energy markets would have the means to stomach another supply shock, at least temporarily. We stick to our cautious view on oil and to our low-confidence neutral view on natural gas.

Energy prices have been at lofty levels for a while, at least from our perspective. Oil trading above USD 100 and European natural gas above EUR 90 is difficult to reconcile with current market realities. Neither today's storage levels nor exports out of the Middle East are pointing to a significant supply deficit. The Strait of Hormuz is anything but closed, remaining widely accessible and largely shrugging off the threat of frequent attacks, at least in the case of oil. Instead, the market narratives that are providing the bullish setting are mostly about conflict escalation risks and potential upcoming supply disruptions. Since summer, the price rally has been largely fuelled by an expansion in risk premia in both oil and gas, alongside the shipping cost spike. We have heard different arguments about why there should be an escalation, either before or after this week's midterm elections in the United States, and all have their merits. Given the recent energy price surge, Iran seems to have managed to raise political pressure on President Trump. Looking ahead and past the midterms, will the US government re-escalate and re-launch attacks on Iran, no longer unconstrained by immediate voter judgment? Or will the conclusion of the midterms allow for a diplomatic off-ramp, as Iran is stripped of its ability to influence near-term voter judgment? Time will tell. While energy markets were pricing in the first scenario last week, Monday's sell-off suggests that the second scenario has gained more attention. Either way, energy supplies are surprisingly ample and could withstand another serious escalation at least for some time. Importantly, since the conflict erupted in February, there has been overall no serious and lasting damage to energy infrastructure, and, driven by pragmatism and opportunism, Middle East exports had almost fully recovered by October, at least in the case of oil. We are in an extraordinarily noisy week due to the midterms, and in a phase where the complex energy supply chains are normalising, albeit not always in immediately visible ways. Given this setting, today's exceptional market fever and wild price swings should not come as a surprise. We maintain our cautious view on oil and our low confidence neutral view on natural gas.

MACRO
US midterms: Race for Congress and what comes next

David A. Meier, Economist, Julius Baer

The Democrats are on course to sweep Congress as high gasoline prices weigh on President Trump's approval ratings. Recounts and legal challenges could delay results. The president would then continue to govern by executive order.

The US heads into Tuesday's midterm elections with the Democrats gaining momentum. High gasoline prices due to the war in the Strait of Hormuz are weighing heavily on President Trump's approval ratings. Despite robust growth and comparably low unemployment, the artificial-intelligence-driven boom has not brought prosperity to much of the population. In the House of Representatives, most forecasts point to a Democratic majority of 230 to 240 seats. In the Senate race, Kansas, traditionally a Republican stronghold, moved into the Democrats' column in polls last week, while Iowa is now tied and rated a toss-up. A Democratic Senate majority of 52 to 53 seats therefore appears possible.

Election night will be long. The West Coast polling stations close at around 23:00 (5:00 CET), by which point the Senate picture could gradually become clearer. More competitive Senate and House races are likely to be called during late Wednesday morning in Europe. However, the timing of a definitive result is difficult to predict. Close races in key states and voting districts may not be decided until mail-in and provisional ballots have been counted. In many states, this takes place after polls close. Recounts could create more delays, with some states having mandatory recount thresholds.

It also remains unclear to what extent President Trump and Republican candidates may legally challenge adverse results. Such attempts may face judicial resistance: a federal judge in Alaska has already dismissed a Department of Justice lawsuit seeking to pre-emptively block certification. Trump has acknowledged that the Republicans may lose and is preparing to become 'Mr Veto'.

Central banks: Careful not to break the cycle

David Kohl, Chief Economist, Julius Baer

Central banks are avoiding aggressive tightening and prefer policy recalibration that fits to the resilient growth but moderate underlying inflation, despite elevated headline rates. Strong US growth and the artificial intelligence (AI) investment boom allow another Fed hike, whereas weaker eurozone momentum limits the case for additional ECB tightening. BoJ rate normalisation will continue at a gradual pace.

All three major central banks, the Fed, the ECB, and the BoJ, opted to pause their rate-hiking cycles, sending a strong signal that monetary policy is being recalibrated in response to shifts in the fundamental backdrop rather than being used to break the current economic cycle. This is in stark contrast to conducting a genuine tightening campaign aimed at bringing inflation down and being prepared to halt the current economic expansion driven by a strong investment boom. The inflation backdrop has hardly improved, as elevated energy prices have lifted headline inflation to 3.7% in the US, 3.8% in the eurozone, and 2.1% in Japan. First estimates for October in the eurozone economies and Japan point to a further increase. At the same time, lower underlying inflation measures and the absence of an energy pass-through to wages in the US and the eurozone have given the Fed and the ECB the opportunity to pause after both raised their policy rates by 25 basis points in September, clarifying that this policy tightening is much more about anchoring inflation expectations than about achieving lower inflation outright. Strong economic growth, on the back of surprisingly robust private and public consumption and a US-centred AI investment cycle, propelled US growth to an annualised rate of 3.4% in Q3 2026 and lifted eurozone GDP as well. While the two largest eurozone economies, Germany and France, grew at an annualised rate of just 0.3%, strong growth in economies sensitive to US information technology (IT) demand, such as Ireland and the Netherlands, helped lift the eurozone growth rate to 1.7% in Q3 2026. The solid growth backdrop in the US is likely to encourage the Fed to lift rates once more in December, while the gradual softening in the eurozone argues against further rate hikes. We expect the BoJ to continue its rate normalisation in December 2026, raising rates by 25 basis points.

EQUITIES
US earnings season update: Beyond the beat

Mathieu Racheter, Head of Equity Strategy Research, Julius Baer

The Q3 earnings season continues to deliver, but the market is looking beyond the headline numbers. Investors are showing renewed interest in previous disappointments and becoming more selective among AI leaders. Corporate guidance remains supportive.

More than halfway through the reporting season, corporate earnings continue to hold up well. With 60% of S&P 500 companies having reported, 82% have beaten EPS expectations and 70% have exceeded sales forecasts. Blended earnings growth is now tracking 30.2% year over year, with growth across all eleven sectors. Yet the strong beat rate tells only part of the story. Aggregate earnings are just 1.9% above expectations, versus a five-year average of 7.5%, partly reflecting one-off charges and investment valuation losses at large technology companies.

Perhaps more revealing is how investors are responding. Even companies missing both sales and earnings have, on average, risen. Markets appear willing to look through current weakness in anticipation of a recovery, while asking how much future success is already reflected in AI leaders' valuations. This helps explain the rotation towards value and near-term cash generation. Within technology, the divergent share price reactions suggest a healthier distinction between companies based on their fundamentals. AI spending commitments remain strong, supporting the investment story, while earnings delivery, valuations, and the ability to translate investment into cash flow increasingly determine which companies are rewarded.

Management guidance offers further reassurance. Above-consensus EPS forecasts outnumbered below-consensus forecasts by 2.3 times in October, versus a historical October average of one. Technology remains the strongest, while consumer sectors and utilities lag. With around 40% of companies still to report, the season has further to run: approximately 140 companies are scheduled this week across technology, healthcare, consumer sectors, oil & gas, and utilities.

Equity strategy: Concentration comes at a cost

Mathieu Racheter, Head of Equity Strategy Research, Julius Baer

Monday's sell-off pushed the Nasdaq 100 Index into correction territory, reflecting growing scrutiny of the artificial intelligence (AI) investment cycle's financing needs and eventual returns. Gains across most S&P 500 constituents point to a rotation in leadership, reinforcing the merits of diversification beyond AI.

The sell-off exposes the influence of concentration on headline indices. The Nasdaq 100 fell 1.4%, taking its decline from October's peak beyond 10% and into correction territory. The S&P 500 lost 0.5%, although most constituents advanced. This divergence suggests a redistribution of equity risk as investors reassess the economics of AI investment. The recent comeback in defensive sectors fits this rotation towards more predictable earnings. Within AI, demand remains robust but rising financing requirements and uncertainty over future cash generation are raising the bar for attractive shareholder returns. Strong revenue growth offers less reassurance when more cash must be reinvested to sustain it. NVIDIA's Q3 results on 17 November will test the durability of infrastructure demand, while Anthropic's planned IPO will gauge investors' willingness to finance the next phase of growth. These catalysts matter for sentiment; over the medium term, earnings delivery will determine whether valuations are justified. We remain constructive on equities, with today's US midterms offering a potential clearing event and a historically favourable period for subsequent returns. Yet earnings growth is slowing from strong levels, a backdrop typically associated with lower absolute equity returns. With less support from earnings acceleration, entry valuations and the sustainability of profit growth become increasingly important. This reinforces our preference for diversification as benchmarks, particularly in the US, have become increasingly concentrated in information technology and AI. Healthcare and Swiss equities provide defensive earnings exposure, while selective emerging market allocations, including India, broaden the sources of growth. Together, these exposures reduce dependence on a single investment cycle while maintaining participation in equity upside.

NEXT GENERATION
Digital assets: The largest heist in history

Carsten Menke, Head Next Generation Research, Julius Baer

Last week, the world's largest crypto exchange was hacked in what could be the largest heist in history. Importantly, the incident does not seem to be related to the security of the block-chain itself. It is not a crypto issue, but a company issue that once more stresses the importance of storage. The hack also needs to be seen through a cybersecurity lens, which is becoming more critical than ever. We reiterate our Constructive view on the cybersecurity theme.

Binance (not listed), the world's largest crypto exchange, has been hacked. More than USD 6 billion in assets that the company had under custody were stolen. This would be the largest crypto heist ever. In an attempt to contain the damage, the company froze some of the assets while at the same time temporarily suspending withdrawals. It also stated that it intends to cover all potential losses. Digital assets markets reacted negatively to the news late last week, with prices of major tokens, including Binance's BNB, dropping between 7% and 12%. Importantly, the incident does not seem to be related to the security of the blockchain itself. It is not a crypto issue, but a company issue. From a crypto perspective, the incident once more stresses the importance of storage. Assets held on centralised exchanges such as Binance are under the custody of a third party, exposing investors to operational and security risks outside the blockchain. Self-custody through private wallets, ideally secured in cold storage with offline private keys, remains one of the most effective ways to reduce custodial risk. While impacting digital assets, the hack needs to be seen through a cybersecurity lens. It was conducted by TraderTraitor, a well-known group of professional North Korean cybercriminals, and follows a growing number of high-profile events during the past few weeks. Thus far, there is no evidence that artificial intelligence (AI) played a role in this hack, but the broader cybersecurity backdrop is becoming increasingly challenging as AI lowers the cost and speed of sophisticated attacks. Industry estimates suggest that one in four malicious breaches is now AI-enabled, up more than 50% from last year. Cybersecurity is becoming more critical than ever. First, AI compresses the time from discovery to exploitation to possibly minutes, rewarding automated patching, vulnerability management, and real-time threat detection. Second, the rise of autonomous AI agents with access to sensitive systems and data creates a new attack surface that requires dedicated protection and guardrails. Third, as AI is embedded across businesses, the cost of a breach rises, making security a strategic priority rather than a discretionary spend. While acknowledging lofty valuations, recent events reinforce our Constructive view on the Cybersecurity theme.

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