The Democrats’ moment of truth

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0:32Good morning from the Financial Times. Today is Wednesday, November 4th, and this is your FT News Briefing. Democrats pulled off big wins in yesterday's midterms, and with political gridlock expected, how will the bond markets respond? Plus, a massive financial scandal in Turkey might be hitting consumer confidence. I'm Mark Filippino, and here's the news you need to start your day.

1:07Democrats won a majority in the Senate in yesterday's midterm elections. They could also win back the House of Representatives. The night started with an early win in Georgia. Georgia, you did it! Democratic Senator John Ossoff spoke after he won re-election. If at times these last two years, amidst the ceaseless onslaught of brutality and indecency, you doubted whether our republic would survive, let tonight's results give you courage that the first light of dawn is on the horizon. From there, the election snowballed. Democrats won in states like North Carolina, deeply conservative South Carolina, and perhaps most significantly, Texas.

1:54It's absolutely insane. That's the FT's U.S. managing editor, Brooke Masters. The Democrats haven't won a Senate seat in Texas since 1998. The idea that the Democrats have finally, after years of promising that, you know, the rapid growth of urban areas and the growing Latino population would, in fact, turn Texas blue. The fact that they've done it is absolutely amazing. I have to confess, I really had stopped believing that it would ever happen. Brooks says the Democratic victories around the country show the party has found a winning formula.

2:51social that, in fact, the Republicans lost because he was not on the ballot. So he is distancing himself from the results. That's the FT's U.S. managing editor, Brooke Masters.

3:08Voters were generally unhappy with surging inflation since the start of the U.S.-Iran war, like this voter who spoke to one of our colleagues reporting from a polling location in the swing state of Michigan. Oh, honey, the polls are going to take me to the polls. There's going to be gas, the food prices. Everything that was promised to us did not come to pass. FT reporters were on the ground in Michigan and other swing states like Georgia, Maine, and Texas. Here's what some voters told them. I did not generally vote Democrat, but this time I did. There's a few things going on there that are moving against Trump.

3:42But then, and it tends to overshadow all the good things that have occurred. Energy is too high. Food is too high. We need a change. I like candidates that tell us what they're going to do rather than why the other person is so horrible and actually make up lies to do that. I'm more voting for change in Washington and we want to see things upended a little bit. Candidly, it's to vote against President Trump. Iran hates us and then we're getting ready to take care of us. Now it feels extra important to bring some checks in Washington. The current administration's agenda has been a disaster. Frankly, I'm concerned about the rise of democratic socialism in private enterprise.

4:27The lesser of two evils is what we're voting for now. Some of these voters also said they were tired of all the attack ads they've been seeing over the past few months. A lot of money went into those ads. And in fact, more money is being spent in these elections than any other midterm cycle.

4:48So we've heard from voters. Now let's turn to investors. I've told you enough times on this show that U.S. treasuries have had a bit of a struggle this year. The bond market had been getting punished for months. And while things have been looking up in recent weeks, investors are hoping for some more relief from the results of the midterms. Here to discuss what they're thinking is the FT's Hak-yung Kim. Hey, Hak-yung. Hey, how are you? Good. Good to have you. So how are bond investors thinking about the midterms? Yeah, so year to date, coming into this midterm cycle, we've had one of the biggest jump in treasury yields out of the past 10 or so midterm cycles.

5:29I would say right ahead of the election, we've seen bond investors kind of be on pause as they wait to see what kind of policy measures will come out of this midterm cycle. So I think bond investors, what they want most out of this election is a gridlock scenario in which basically, so we have Trump, a Republican president, but then a gridlock Congress. So either Democratic control of Congress or we have Democrats controlling one portion and Republicans controlling another portion of Congress. So it's harder for the two parties to essentially reach agreements, right? which means that it's harder to pass bills and then you just don't have as much federal spending overall.

6:14And then obviously that helps take off the pressure on bond yields. So some bond investors have been calling this the most consequential election in years. Why is that? I think one of the big questions is obviously AI spending and that being a big issue on ballots this midterm cycle. And there are certain ballot measures that would either pause data center construction entirely. And, you know, that obviously putting a bit of a speed bump into the AI build out, which has been playing a big role in treasuries. So a Democratic win. So you would get that gridlock situation that investors like. And then Democrats in this election have positioned themselves more against the AI data center build out.

7:00And if investors get a sense that the investment in AIA is going to cool down, that could take off some more of the pressure on bond yields. That's Hak-yung Kim, a financial reporter for the FT. Thanks, Hak-yung. Thank you.

7:17Qatar is on track to become the world's biggest buyer of American liquefied natural gas. The Gulf state has always been a massive producer and exporter of LNG until the U.S.-Israeli war with Iran knocked its ability to get gas out of the ground and shipped across the world. But it's still on the hook for LNG orders. So Qatar Energy, the state-owned company, signed two agreements in late October. They'll boost the amount of American LNG it can sell to its international customers by 7 million tons a year. That'll make it the biggest buyer of American LNG by 2033. But interestingly enough, none of the LNG will actually end up in Qatar first.

7:59To avoid shipping it through the dangerous strait of Hormuz, Qatar will send the LNG directly from the U.S. to its customers.

8:12Turkey is in the middle of a national financial scandal. It's being called a Fonzie. That's a portmanteau of the words fund and Ponzi, like Ponzi scheme. Nearly half a million retail investors poured tens of billions of dollars into investment funds only for the money to disappear. It's raising some uncomfortable questions about the role former government officials played. The FD's John Paul Rathbone has been digging into this story. Hey, John Paul. Hello. Okay, so how exactly did this Fonzie scheme work? It's a variant of the old school pump and dump schemes where it's thought that funds would buy the shares of small companies, buying, buying, buying, cornering the market basically in that stock.

8:59The whole market cap of the company zooms up and the net asset value of the fund sitting on top of it also zooms up with this operation repeated through the stock market. It really started to come to a head in early 2025. Before then, it had been a quite a small operation, a closed club. But then some of the funds went public. And when they went public, that's when retail investors could join in. It zoomed up till the peak of end of August in 2026, and then popped in the middle of September. Wow. And do we know who is behind all this? At the moment, these are all allegations. But one of the biggest characters in the scandal is a brokerage called Terror, owned by a 53-year-old financier called Tesman.

9:48And his funds seem to have had the most clients and had amongst the biggest returns. But there were others. In fact, there were 131 funds in total. So a network of individuals involved is It's very impressive and ranges across the whole establishment. And there is a common assumption, right or wrong, that this required complicity and a lot of people turning a blind eye. So when we're talking about the whole establishment, we're also talking about like government officials. Who else is involved, JP? So a lot of people in the establishment are involved or are alleged or under suspicion of involvement.

10:26And we're talking the chiefs of supervisory bodies, the stock market, financial inspectors, executives, the country's biggest insurer, which is majority owned by Turkey's Sovereign Wealth Fund, which is chaired by Erdogan himself. So the establishment, the fingers pointing everywhere in all directions, there have been 100 arrests so far. The why it happened, well, people there are sprouting a million theories. But one way of understanding it is that the current government has been in power for 24 years. And any government that's been in power for that long, a quarter of a century, some of the mechanisms become weak and cronyisms can seep in.

11:06And that is one accepted theory for what has gone on. Erdogan, the president, is absolutely furious. And he's sworn that no one will be spared the blade of justice. however high it might go. And just out of curiosity, how is this fallout from the scam hurting Turkey's wider economy? So you've got an economy that's been in a reform for like three years and interest rates have been very high as they've tried to get inflation down. They've got it down to 30 % from a peak of around 100. And Turks are generally tired. Living with 30 % inflation is hard. It erodes the real wages. And then along comes this fund scandal, which seems to be involving a roll call of the establishment.

11:48And we're talking huge sums of money. So all of this, it's a bad blow for the political side. It's a bad blow for consumer confidence as well. And remarkably, there was like an 8 % drop in consumer confidence in October as in the weeks after this fund crisis happened. So whether that's directly attributable or not is hard to say, but it's not good for consumer confidence. John Paul Rathbone is the FT's Turkey correspondent. it. Thanks so much, JP. Thank you so much.

12:21You know the saying, don't let the door hit you on the way out? Well, Italy is taking the opposite approach. Italian Prime Minister Giorgia Maloney plans to charge an exit tax on people who leave the country starting next year. The fine print is it'll target people who have assets of at least 800 ,000 euros. If they decide to move from Italy, they'll have to pay a 26 % levy on paper profits. The tax still needs Parliament's approval, but wealth advisors are warning that if it goes through, it could drive away rich expats who have found Italian cities quite appealing over the past decade.

13:01You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest news from the Financial Times.

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