Weekly market wrap up

The US midterm elections delivered a significant shift in Washington this week, with Democrats securing control of both the House of Representatives and Senate, including victories in several traditionally Republican states. The result changes the balance of power in Congress and raises the prospect of greater scrutiny of government policy, including the rapidly expanding AI sector. For markets, attention has turned to whether increased oversight could influence the pace of investment in AI infrastructure, particularly data centres, which have become an important driver of US economic activity. Treasury yields also moved lower amid broader economic uncertainty, with the benchmark 10-year yield falling towards 4.83%. With control of Congress changing hands, the coming months could bring more negotiation and compromise over economic policy. 

New Zealand's banking sector gained a new challenger this week, with global financial technology company Revolut becoming the country's 27th registered bank and its first fully digital bank. Having operated locally since 2023, the London-based company has committed to investing NZ$120 million in New Zealand over the next five years, bringing its app-based banking model into more direct competition with traditional banks. The development is particularly interesting given the dominance of the big four banks, which collectively account for more than 80% of New Zealand's banking market. While a new banking licence is unlikely to disrupt the established players overnight, it highlights the growing role of financial technology in challenging traditional business models and increasing consumer choice.

New Zealand’s labour market continued to lose momentum in the September quarter, with unemployment climbing to 5.7% from 5.6%, above market expectations of 5.5%. That marks the highest rate since 2015, with 174,000 New Zealanders now unemployed - more than the combined populations of Palmerston North and Napier. While the quarterly increase was modest, it continues a broader trend of rising unemployment that began in 2023. Beneath the headline, there were further signs of softness, with a greater proportion of people working part-time and both usual and actual hours worked declining. Annual wage inflation also remained subdued at 2.1%, suggesting little pressure from rising labour costs. The figures provide a timely reminder that economic conditions are experienced differently across households. 

New Zealanders head to the polls this Saturday in what is shaping up to be a closely contested general election. With no clear outcome emerging from recent polling, the formation of the next government may depend on coalition negotiations after the votes are counted. The campaign has unfolded against a challenging economic backdrop, with employment conditions, cost-of-living pressures and public services featuring prominently. For financial markets, attention will turn to the next government's approach to taxation, public spending and economic reform, with the eventual policy direction likely to become clearer as negotiations progress. Preliminary results will emerge on election night, but official results are not due until late November, potentially leaving plenty to discuss in the meantime.