Why investors soured on the Democrats

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0:32Good morning from the Financial Times. Today is Friday, November 6th, and this is your FT News Briefing. Well, the honeymoon between investors and Democrats sure was short-lived. It seemed like the reality of greater AI regulation kind of set in. Traders really kind of dumped equity stocks right at the open. That's because the incoming Congress is going to be a lot tougher on AI companies. And Democrats are saying, let's never trust these guys again. They cozied up to Trump.

1:07Plus, we'll look at how a bank collapse brought down Paraguay's president. I'm Mark Filippino, and here's the news you need to start your day.

1:24U.S. tech stocks are feeling the heat after this week's massive Democratic victory. The Nasdaq 100 fell nearly 6.5 % yesterday. Wall Street shed over$3 trillion in the process. Investors are worried that the new Congress will mean a slowdown in the AI boom. Here to tell us what comes next is the FT's U.S. Markets Editor, Kate Duguid. Hi, Kate. Hi. Okay, we're going to hear more in our next segment about what exactly this Democratic Congress could do to data centers and the regulations that they're going to put on AI. But I want to ask you about what investors are thinking. Equities did pretty well on Wednesday once it was very clear that the Democrats were going to take both the House and the Senate.

2:06Why did they change course so abruptly yesterday? As you said, there was a sort of a relief rally on Wednesday. It seemed like traders were excited about the possibility of fewer curveballs in terms of policy. It seemed like maybe the Iran war was going to be wound down. And then on Thursday, it seemed like the reality of greater AI regulation kind of set in that traders really kind of dumped equity stocks right at the open. And that that kind of fed on itself, right, that there was what's known as forced selling. So there was a big enough move that it triggered certain funds to have to sell. It seemed like chip stocks, the AI trade more generally was getting hit the hardest.

2:57So given that things were so volatile yesterday, do you expect this sell-off to continue or will the pendulum swing again today? So one of the things that we know is that earlier on Thursday, a hedge fund called Walleye was returning a portion of its capital to investors, shutting down its equities business. And so if we continue to see sort of blowups like that, at equity-focused funds. It's possible that this move sustains itself for a little while. But when we spoke to investors, they were expecting a knee-jerk reaction from markets, but that ultimately that this would sort of peter out, right?

3:36Certainly, I don't think that this is the big one. I don't think this is the major sell-off in AI. What does this mean then for the broader market, the S &P 500 and the NASDAQ, given that AI stocks have been propping up the market for the past couple of years? I mean, it's a great question. We did see selling extend to sectors outside of AI on Thursday. Consumer staples, utilities, healthcare. There was a big move in Walmart stock. I think that that makes sense, right? It's that anything that's happening in AI can affect the market more generally. It's been such a huge part of the market. But the other thing is just that AI has been such a big part of the U.S.

4:18growth story Over the past couple of years, you know, I was speaking to an investor yesterday who said that they thought that AI was responsible for a third of U.S. growth this year. And so if the AI trade gets hit, that would have serious consequences for U.S. growth more generally. That's the FT's Kate Duguid. Thanks, Kate. Thank you.

4:43Now on to the actual regulation of the AI companies. It's no secret that Silicon Valley execs threw their weight behind the Trump administration. They hoped that he'd let the AI industry rip. VFT's Joe Miller says American voters trashed those hopes. He joins me now to discuss where the Democratic sweep leaves Trump-aligned tech companies. Hi, Joe. Hi, Mark. So what will these election results mean for Silicon Valley and its rapidly growing AI industry? I think they're nothing short of cataclysmic for Silicon Valley firms and particularly those who have cozied up to Trump, as you say, over the past few years, very visibly traveling back and forth to Washington, appearing at the White House at his side in roundtables and at dinners.

5:28And the voters rebuked the Republican Party and their backers, which are largely Silicon Valley mega donors in this election. And what's more, many of the Democrats who won were running on an explicitly anti-data center ticket, sometimes anti-general AI acceleration ticket. And now it looks like there is going to be a Congress in which big tech has very, very few friends indeed. Yeah, what are we expecting Democrats to do in Congress regarding the AI industry come January when the House and the Senate become blue? Well, the first thing that will happen is that Democrats will get subpoena power.

6:08They will head powerful committees like the Oversight Committee. And we've already heard from Democrats who are set to lead those bodies that they are going to haul AI CEOs, tech CEOs in front of Congress and make them testify under oath. And we haven't seen that for a couple of years in a Republican-controlled Congress. And after that, I think we'll see Democrats try and ram through bills that either slow down the AI build out, that impose strict safety measures, child protection, etc., etc. And you could say, well, you know, Trump has said he would veto legislation, but there are AI safety activists who believe there could even be a veto-proof majority in both houses for this kind of legislation.

6:52I think one of the things that's confusing to me, Joe, is that the AI companies are worried about regulation. But these tech leaders that you mentioned keep going back and forth from Silicon Valley to Washington. We're at the White House about a month ago, and they were actually calling for more unified regulation from the federal government. Why would they ask for that and get spooked by it now? Yes, you're right. There were some big AI companies calling for regulation, but they wanted a moderate form of regulation that wouldn't imperil their businesses. What they might get now is a much, much harsher version of that.

7:27And Democrats and progressives within the party in particular are saying, let's never trust these guys again. They cozied up to Trump. They bankrolled Republicans to the tune of hundreds of millions of dollars. so they no longer get a say in what type of regulation they want. So then is there very little chance that we'll see these AI tech companies try to cozy up to Democrats because they know that that'll just be some wasted effort? Or do they think they have a shot at maybe veering the regulation one way or another? Well, they're certainly trying. In the past few months, we've already seen a lot of AI companies and big tech companies ditch some of their Republican operatives and run to hire lobbyists with links to the Democrats.

8:10And, you know, I would expect that you would see money flowing to Democrat super PACs in the next few months and Silicon Valley trying to change its tune. But the extent to which they kowtow to Trump over the past couple of years, you know, even adopting his preferred name for AI, superintelligence, SI, as soon as he ordered them to do so. The extent of that has left Democrats incredibly angry. And it's unlikely there will be very much goodwill towards them on Capitol Hill. Joe Miller reports on the intersection between AI and politics for the FT. Thanks, Joe. Thanks very much.

9:01Paraguay's president has quit his job just days after a massive bank collapsed and citizens demanded his impeachment.

9:12Minutes after he resigned yesterday, the country's lower house in parliament voted unanimously to impeach him. The FT's Kira Nugent has more. So Paraguay's president, Santiago Pena, has resigned because of a banking crisis that erupted earlier this week. This is Bueno Bank, a former fintech that had a really stratospheric rise in Paraguay. It already has 2.9 million customers, which is about 60 % of Paraguay's adult population. And on Tuesday, that all came crashing down when the central bank said that Bueno was insolvent and it was seizing control of the bank and would begin to wind down its operations.

9:50Peña's been blamed for the collapse of Bueno Bank. He's a former investor in its holding company. And he also plowed a lot of public pension money into the bank. So the fact that it's gone insolvent has gotten people very upset. So at the moment, there are a lot of people who aren't able to access the money they had deposited in Ueno, although the central bank says that most of them will be made whole using public money. And the central bank also says there isn't a wider risk to the financial system, that this is kind of a self-contained case. But, you know, for the country longer term, this is not great for its image as it really pursues a kind of status as a safe haven for investors in South America.

10:31Paraguay's sovereign bond prices have been suffering in the last few days. And I think more broadly, people will be kind of thinking how much of Paraguay's problems with, you know, corruption and law and order and governance have really been resolved. There's a lot of questions about how this bank became so powerful so fast and why no one saw the problems earlier. That's the FT Southern Cone correspondent, Kira Nugent. Stay up to date with the latest on this story by following coverage on FT.com.

11:07Hold on to your mortgages. The Bank of England just increased interest rates by 25 basis points to 4%, which means if you have a mortgage, you might be facing higher borrowing costs. This is the first time the BOE has raised rates since 2023, and it said it plans to raise them again as soon as next month to get inflation down. Persistently high costs in the UK have been bugging the bank for a while now. Inflation is expected to hit 5 % next year, which is well above the central bank's target.

11:44We've got an update on how the UK government wants to handle its controversial relationship with Palantir. It's trying to squeeze the American tech company out of a major contract with the UK's National Health Service. Palantir has been criticized for its work with intelligence services, immigration enforcement, and the Israeli military. Chris Smyth has the scoop. Hi, Chris. Hi, Mark. So, Chris, last time you and I spoke, you told me that the UK government is searching for a British alternative to Palantir for the National Health Service. What did you learn about how it's going about this? So Panty has been in the health service since the pandemic, initially on a temporary basis, and then in 2023 it won a big£330 million contract, which has attracted quite a lot of scrutiny, including from my colleagues at the FT about some of the claims made over the effectiveness of this programme.

12:36And new Prime Minister Andy Burnham, who's made a big thing about buying British, being a key part of his re-industrialisation strategy, wants to seek alternative suppliers and was sounding out British companies. Now, what is now clear is the path forward the government has chosen. They've accepted they can't trigger a break clause in the Palantir contract, which is due to take effect in February. There isn't time, they think, practically to do that. So they are going to extend that contract for another couple of years, which Palantir will be pleased with. But at the same time, they are going to run a fresh procurement process for the long-term future of that data program, which will be rewritten on a very different basis, designed to give a lot more weight to UK tech sovereignty.

13:18Can the government actually do this, though? There are lots of legal complications about this. The government cannot legally say, we don't want Palantir in the NHS. This is a big company with lots of lawyers. They took legal action against the mayor of London, Sadiq Khan, after he said he was blocking a contract with the Metropolitan Police because of the company's values and forced him to say, actually, no, the company's values had nothing to do with the decision at all. So the government is very clear that they have to consider Palantir's bid alongside anyone else. It's just that the basis on which they're going to write this new specification is going to be very different and more favourable to UK-based companies.

13:53And we should mention that in your reporting, Palantir declined to comment and the UK government did not respond to requests for comment. So Chris, how do you see this all playing out? Will this quell any public sentiment? So there is an optimistic scenario where this calms the political row and leads to much better use of data in the National Health Service and better treatments for patients and for the world. There is a pessimistic scenario where it inflames the because there will be a battle over how to spin this. Palantir will say, well, our contract's been extended, we're confident of winning it longer term, and some critics of the company might agree with them on that because they remain angry that it's not going immediately, whereas the government wants to say, look, we are listening to those concerns, we've acted on them, and we're putting this whole process on a fresh basis, which will make it fundamentally different from what has gone before and mean that those concerns about Palantir should not be so valid in the future.

14:47So there will be a bit of political battle over the meaning of what the government's doing here. Chris Meith is the FT's public policy editor. Thank you so much, Chris. Thank you, Mark. You 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 next week for the latest news from the Financial Times. The FT News Briefing is produced by Sophia Ahmed, Sonia Hudson, and Josh Gabor-Doyon. I'm your editor, Mark Filippino. Our video producers are Zachary Alfred and Dennis Golan. Our show is mixed by Alex Higgins and Sam Giovinco.

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