Oil and data centre stocks sink after US midterms

Oil, chip stocks and the dollar faced pressure in Asia on Thursday after US voters solidly backed the Democrats in the midterm elections, sparking hopes for an end to the US-Iran war. Brent crude futures plummeted nearly 9%, dipping below US$100 per barrel and marking the largest weekly decline since April 2020.

The drop in energy prices bolstered bond yields, weakened the dollar to a one-month low against the euro, and supported stocks. Major stock indexes, including the S&P 500 and European shares, experienced a rise in value.

Solar supply chain stocks gained the most, anticipating increased Democratic support for renewables, while data centre companies and their equipment suppliers in Asia saw a decline due to expectations of stricter regulation. South Korea's chip-heavy KOSPI index fell by 4%, nearing a seven-month low. Taiwan's benchmark index also experienced a 1.8% decline.

Data centre opponents, who campaigned on moratoriums for data centre construction, secured significant victories in Texas and Georgia. This shift in public opinion suggests a potential temporary slowdown for AI, data centres, and computer chips. However, most analysts believe demand will not be significantly impacted.

Analysts believe a resolution to the US-Iran war could further lower oil prices, easing inflation pressure and decreasing the likelihood of future interest rate hikes. The yield on benchmark 10-year US Treasuries dropped by 6 basis points overnight, and 2-year yields, which track short-term rate expectations, fell by 2 basis points to 4.56%.