Investors are bracing for a fresh round of turbulence ahead of US mid-term election fireworks while they assess the extent that companies are burning through cash to keep the AI bonfires burning.

The FTSE 100 has opened lower amid high levels of wariness as the prospect of another round of military action beginning in the Middle East looms. Crude prices have dropped back, with Brent Crude trading around $110 a barrel as some hopes swirl about a potential diplomatic push before all-out war is announced yet again, and some hopes are being pinned to negotiations between Qatar and Iran to try and limit repercussions across the region.

Investors are still reeling from Friday’s brutal sell off, although it seems some are primed to pounce in the hope of netting a bargain after the tech sector’s battering. This seems to be weakening the attractiveness of the Footsie’s more defensive constituents. The S&P 500 is set to open higher, and the Nasdaq looks likely to claw back some losses, although they are unlikely to rebound fully given nervousness about prospects ahead.

AI roils markets and bends behaviour

AI isn’t just roiling markets, it’s bending behaviour that was ingrained long before new models arrived with a bang. It’s this upheaval which is behind the mega sell-off which hit valuations at the end of last week. The cost of compute is rising so fast it’s warping demand. PCs, Intel’s bread and butter, are becoming unaffordable with companies holding off mass purchases and that’s hurting.

This coming week’s results will be another test of when the eye watering AI bills will start seeing returns. Apple reports later, with sales of the iPhone 18 Pro, featuring deep AI features, set to be a test. Palantir, AMD and Qualcomm will also reveal their numbers this week. Investors will be keeping a close eye on margins, guidance and cash flow levels. What investors will want to see to avoid sell offs is a ‘reasonable’ amount of capital expenditure and growth beating expectations – that’s the sweet spot, growth without runaway spending. It may seem like a tall order but Microsoft managed to pull it off. However, Microsoft also announced voluntary buyouts for 60,000 staff – another example of the wave of AI induced job losses. If jobs are eroded faster than new ones are created, it risks affecting the spending power of middle America, which could have repercussions for the economy ahead.

Wariness about Fed interest rate path amid AI’s economic effect

Wariness about the future path of interest rates has also been weighing on sentiment. Economic growth came in stronger than expected at the last count, which has fuelled more bets on multiple rate hikes from the Fed. But the sheer scale of AI spend also appears to be warping the figures, with AI-related investment and the wealth effect it is generating estimated to be behind nearly half of core US growth. The big question is whether the economic foundations of AI really are big enough to support the powerhouse that’s being built on it. If more cracks start to appear. in terms of disappointing returns from this huge spending spree or if the circular nature of the funding deals underpinning growth is broken, there is likely to be fresh volatility ahead.

UK interest rate hike expected at Bank of England policymakers meet

As the chronic energy crunch continues and threats of fresh strikes on Iran loom after the midterms, inflationary worries are keeping central bankers preoccupied. The risks of energy costs becoming embedded in the economy are mounting and that’s why the Bank of England is expected to hike rates at the meeting on Thursday.

UK inflation has already hit 3.5%, and it looks set to push past 4% in early 2027. The widening conflict in the Middle East has revived inflation fears, while slightly stronger-than-expected growth this year has eased worries that higher rates would undermine the economy. Nevertheless, with growth downgraded for next year, the current market pricing for rates look somewhat overblown, as consumers and companies are already showing signs of turning more wary about spending and investment which could dampen demand and keep price rises from escalating.

US mid-terms loom large and Trump’s runaway train is set to hit the brakes

As America goes to the polls, the runaway train of the Trump administration looks set to hit the brakes with the chances of the Democrats taking both houses increasing. The latest closely watched Silver Bulletin forecast gives them a 78% chance of taking the Senate and 95% for the House. They have several routes to Senate success – Ohio and Maine both favour the Democratic challengers, and North Carolina is edging their way too. If Texas, where Talarico faces Paxton, doesn’t come through, they may not need it need it. But some seats will be tightly fought, and slow-counting states could delay a result.

Data centre anger is also on the ballot with candidates in at least 21 races across 18 states airing ads mentioning data centres, split almost evenly between the parties. It’s not simply nimbyism, but affordability concerns are front and centre given that many voters blame data centres for higher power bills. This could yet prove to be another big bump in the road for AI advances and profitability.

The question is whether the brakes on Trump’s excesses will make much difference to events already set in motion. Tariffs are the big test, and the Supreme Court has ruled that power to impose tariffs rests with Congress. So, a hostile Congress would make imposing higher duties harder, but a veto war looks likely.  Although the mid-terms aren’t expected to be market mover this week, the uncertainty of how the administration will respond is creating wariness. Trump may end up being a lame duck president, but even wounded he’s still likely to come out fighting.