GeoMacro | Tactical Risks & Opportunities

Iran is effectively trying to create an “October surprise,” an adage that refers to a pre-election crisis that alters the trajectory of polling and the eventual outcome. It is likely to be successful, with oil prices likely to face upward momentum from here. The intention would be to ensure that oil prices do not see any significant decline from now until November 3.

Democrats will win both houses in the midterm, but beyond near-term volatility, none of the outcomes pose a major market risk. The vote is more important as a signal of an anti-business turn in US policy in coming years, which markets could start to price in late 2027 or early 2028.

Democratic candidate for the Texas Senate seat, James Talarico, has been leading his opponent, Republican Ken Paxton, for over a month in the betting markets. At the moment, Talarico’s probability of turning the Texas Senate seat blue is a whopping 65%. This is partly a result of Paxton’s flawed candidacy that builds on his dramatically flawed time as Texas’s attorney general. Remember, the staunchly Republican Texas House of Representatives voted to impeach Paxton in 2023!

Markets woke up to twin Houthi attacks on October 12. On October 9, the Yemen-based, Iran-allied, militant group attacked the King Khalid International Airport with a missile, killing 12 civilians and injuring over 300. Following that attack, President Trump suggested that the US “may” join Saudi Arabia’s fight against the Houthis. On October 11, the airport was struck again, with Saudi Arabia vowing to respond.

We keep the Global Geopolitical Risk Score at 8 because there are still no ceasefires in Europe or the Middle East. Russia is provoking NATO, which will need to push back. Iran, emboldened by the lack of definitive US success, pushes its luck, which could invite a destructive response from the US. The Chinese economy remains fragile, increasing the likelihood of foreign belligerence. After the US midterm, President Trump faces fewer political constraints, allowing him to pursue a maximalist foreign policy to cement his legacy during his lame-duck period.

The Irkutsk plague scare is not yet a crisis, but if it becomes one, Russia is a bad place for it to happen.

The most bullish development for Brazil from the weekend’s elections was not the higher odds of a right-wing presidency, but the likely president’s (Flávio Bolsonaro) stronghold in Congress. Upgrade Brazilian fixed-income markets to overweight and equities to neutral within their respective EM portfolios.

The situation in the Middle East is becoming complicated. Over the past week, several events raise the odds that Brent prices could burst through their 2026 high of $126 per barrel.

President Trump is raising tariffs again, now through 2027 – and more countries will retaliate this time. While markets can climb over “Liberation Day 2.0,” investors should be wary of today's aggressive policies engendering drastic policy change in 2028.

Alternative for Germany’s election win in the state of Saxony-Anhalt is overrated.