Data centres prove unpopular with US voters

Implications of the US midterms

The Democratic Party will now assume control in both the Senate and the House, from 3 January. So far, there have been three primary market implications from the election – related to artificial intelligence (AI) stocks, US bonds and oil.

On AI stocks, there were over 40 polls on data centres and, with one exception, voters voted to restrict new builds. While this should not be extrapolated to a nationwide ban, it does show how unpopular data centres are with the US public. The results highlight strong local resistance to data-centre development where it reached the ballot box, increasing uncertainty about the speed and cost of infrastructure expansion.

The result was a selloff in tech-related stocks. The S&P 500 is down around 5% over the past seven trading days, while the S&P 500 equal-weighted index is down around 0.7% over the same period.

The oil price had already declined heading into the election and then declined further after the election. Presumably, a Democratic majority Congress limits the ability to escalate militarily in the Middle East.

As a result of the two themes above, energy and information technology stocks have taken a hit, while most consumer stocks are up over the past seven trading days.

The third theme concerns changes in the US 10-year bond yield. As AI stocks sold off, the US 10-year Treasury yield declined. One possibility is that the likelihood of a slowdown in AI capex drove both the S&P 500 and Treasury moves. Reduced capex would lessen competition for capital and take some pressure off yields. A falling oil price would have helped yields too. All in all, it means that US bonds are proving to be a hedge against recent US equity market selloffs.

Wall Street's good reporting season continues

Nearly 90% of S&P 500 constituents have reported for the third quarter, and it has been a good reporting season, with 83% beating expectations on the bottom line. The current consensus forecast is that earnings growth in the third quarter will be around 33% year-on-year.

Tech stocks are now trading at a forward price-to-earnings ratio of 17, making them among the cheapest sectors in the US. 

A strong US nonfarm payrolls print

The US added 165,000 nonfarm jobs in October, well above the consensus forecast of 70,000. The prior two months were revised up by a collective 84,000 too. The three-month average rose to 137,000 per month.

More than 50% of industries added jobs and the unemployment rate dipped to 4.1%. It was a strong print that points to a reacceleration in the US labour market.

What was particularly interesting was how clearly AI was already reducing employment in some sectors. For example, the number of people employed as programmers and in the arts (movies, entertainment, etc.) have both declined since the advent of ChatGPT.

The aggregate employment numbers are very good, especially given the length of the cycle (now 60 consecutive months of an unemployment rate of 4.5% or lower, the longest spell since the 57 months of growth in the second half of the 1960s).

The market immediately increased the odds of a near-term Fed hike. Even so, the market's expectations for a cut in the Federal funds rate by the end of January 2028 are around 50 bps (half a percentage point) lower than expected in September.

Global PMIs are still expanding

Last week, we saw the release of global purchasing managers' index (PMI) data, which showed that economic activity in most countries we monitor was still expanding in October, but at a slower pace than the month before.

The US composite PMI (combining manufacturing and services) remains elevated, suggesting robust US economic growth into the final quarter of the year. That said, both services and manufacturing PMIs fell in October.

There has been a dislocation between the US PMI level and the US 10-year bond since 2020. It seems the US 10-year has increasingly been driven by inflation, fiscal risk, and the term premium (the extra yield that investors demand for holding a bond for a long period), rather than by short-term growth measures.

Productivity gains loom large in the US

US productivity rose at a 3.6% annualised rate in the third quarter, exceeding expectations. Productivity gains outpaced compensation growth, allowing unit labour costs to fall by 0.7%. This is encouraging for inflation and corporate margins, although the distribution of productivity gains between workers and shareholders remains important for tracking consumption trends. 

The US trade deficit remains large, while the Chinese trade surplus is high

Despite protectionist measures, the US's trade balance remained in a heavy deficit in September. Both import and export growth slowed marginally.

Consumer goods import growth was weak, but capital goods imports continued to rise year-on-year, up 78%, mainly linked to AI spending. As noted above, this trend will be under increased scrutiny following the midterm elections.

China's trade surplus is on track for another record year, potentially at $1.3 trillion (up from $1.2 trillion in 2025), nearly 10% higher than last year's record.

An interesting trend is the noticeable surge in Chinese exports to Mexico, Taiwan and Vietnam, while US imports from those same countries have risen. This likely explains some rerouting, as China's surplus has not declined noticeably despite US protectionist measures.

Election outcomes in the context of the trade deficit

The outcome of the US election is likely to lead to a different posture toward AI investment, which has contributed significantly to private investment.

Can a new regime in the US sustain private investment expectations from now on? Consensus forecasts still show that private investment growth is expected to remain strong.

This will likely have implications for the trade deficit, given the contribution of AI- and data centre-related imports. 

SA's debt-to-GDP peaks below where it was previously estimated

As mentioned last week, South Africa's GDP was revised up, which would have a positive impact on the debt-to-GDP outlook. According to National Treasury, debt-to-GDP peaked at 74.6% in 2025/26, significantly below what had been previously estimated. Treasury expects the debt-to-GDP ratio to be below 70% by 2032/33.

While solvency metrics have improved, it's worth noting that liquidity and affordability metrics have changed as a result of the GDP revision (i.e., revenue and debt service costs).

Overview of the SA local government elections

ANC support has declined again, and is now sitting at just 30% of the vote. Newly elected councils must hold their first meeting within 14 days of the results being declared, which doesn't leave much time for negotiations.

According to the prediction market platform Polymarket, Helen Zille of the DA is still the firm favourite to be mayor of Johannesburg (67% chance), MK is the favourite to get the mayor's role in eThekwini (51%), and it's an open race in Tshwane.

The key risk now is negotiations unraveling to the extent that they put pressure on the sustainability of the government of national unity, which seems unlikely at this point. 

Local government elections take place in SA on Wednesday

This week South Africa will head to the polls to elect local government officials. According to Polymarket, only three municipalities have a clear favourite to become mayor.

We do not anticipate a material move in South Africa's political risk premium. Typically, local government elections do not affect the national policy framework. 

Stats SA revises its GDP estimates

Every five years or so, Stats SA rebases and revises its GDP estimates in response to changes in methodology and new information. This is a standard exercise across most countries. The latest revision was released last week and saw South Africa's nominal GDP in 2022 revised up by 4.9% and in 2025 by 5.3%. Some of the increase was due to better measurement of illegal mining, illegal online betting and online prostitution, according to Stats SA.

The net result of the upward revision to nominal GDP is a reduction in SA's debt-to-GDP ratio, estimated to have fallen from a peak of 78.4% to around 74%. While the debt-to-GDP ratio has improved, the revision has clearly had no impact on the level of debt, debt-servicing costs, or other similar metrics.