Tail risks before the US midterm elections

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新浪财经2026/10/21 23:53

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Tail risks before the US midterm elections image 0

According to the Huitong Finance APP—

The research team under Denmark Bank reviewed the United States' political tail risks on the eve of the November 3 midterm elections. As the election campaign intensifies, various unexpected political events and their potential disturbances to the financial markets, the US dollar, and US Treasuries continue to be closely monitored by institutional investors. Global macro trading desks are assessing the possible cross-asset chain reactions caused by turbulence in US political affairs. More than 40 US states have started early voting, and prediction markets still tend to believe that the Democratic Party will secure control of both the House and Senate.

This report focuses on analyzing the possible actions of Trump, including attempting to dismiss Federal Reserve Governor Cook, introducing fiscal resolutions, and invoking emergency powers. It also simulates how policy uncertainty under different scenarios is transmitted to asset prices and evaluates the differentiated impact of various political shocks on interest rates, exchange rates, and equity markets.

　　Trump’s Actions and Market Risk Scenarios

With just two weeks remaining until the US midterm elections on November 3, more than 40 states have already started early voting. A large number of voters have chosen to vote by mail or in person ahead of time, which introduces variables to the final vote counting pace and the confirmation timeline of the election results. Historically, large-scale mail-in voting tends to extend the vote counting window, thereby increasing short-term market uncertainty. Since October 13, expectations in the major prediction markets have remained essentially unchanged.

Prediction market Polymarket still considers the most likely outcome to be the Democratic Party gaining control of both chambers of Congress, with a probability of 62.5%. However, tail risks have not disappeared; the market needs to provide hedging space for low-probability, high-impact political black swan events and cannot focus solely on the baseline scenario while ignoring extreme scenario pricing.

Under pressure from the situation, Trump may try to dismiss Cook before the new Senate takes office in early January.

Because even if he tried to dismiss Cook later, a Democrat-majority Senate could veto his nomination to the Federal Reserve Board. Changes in the personnel of the Federal Reserve Board directly affect the voting dynamics of monetary policy, subsequently altering market expectations for future interest rate paths. If there are shifts between hawkish and dovish members, US Treasury yields and the US dollar would be repriced immediately. However, we expect he will not be able to complete this dismissal before the new Congress is in session. The entire dismissal process involves legal hurdles, and there is opposition within Congress, making it difficult to implement. Pushing it through hastily could also trigger legal battles and contestation within the judiciary.

Trump may attempt to directly intervene in the voting process on election day.

According to prediction probabilities from trading platform Kalshi, there is a 13% chance that Trump will declare a national emergency before election day, and a 29% chance of him doing so by the end of 2026. However, even with such a declaration, the President has no authority over election affairs, which are managed by each individual state. The US electoral system is highly decentralized, with each state independently setting its own rules. Emergency announcements at the federal level alone cannot directly overturn the electoral process in each state; it is state Secretaries of State who are the actual authorities for election matters.

　　A more radical move would be invoking the Insurrection Act or declaring martial law. Invoking the Insurrection Act would allow the deployment of troops to polling stations, and Kalshi predicts the probability of this happening by the end of 2026 at 17%. Martial law, which would mean a military government replaces the civilian government, is an even more extreme measure. If incidents of this nature occur, market risk-aversion sentiment will likely rise rapidly, causing sharp volatility in equities and currency markets, and prompting a short-term buying surge in traditional safe-haven assets such as gold and US Treasuries.

Editor: Guo Jian

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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