Democracy, As Scheduled

By Molly Schwartz, cross-asset macro strategist at Rabobank

After breaking above $100/bbl on Wednesday, the rally in Brent crude oil continued yesterday, climbing almost 7% on the day and closing at $108/bbl, the highest price since May. US Treasury yields followed with a sharp bull-flattening, with the 2-year marking its highest level since July 2024 at 4.58%, and the 10-year making its way up to 4.96%—the highest level since October 2023. Meanwhile, US 30-year Treasury yields jumped 7.3bp to 5.36%, the highest level since 2002 and 2-year inflation expectations soared to 2.6%, their highest level since June and more than 0.71ppt above the July lows.

As the US midterm elections approach, many are anxiously trying to gauge whether GOP will be able to retain control of both houses of Congress. As mentioned in yesterday’s installment, one strategy the Trump administration is trying to use to ensure a victory is the promise of a $5,000 “Trump dividend” issued to every American adult if, and only if, Republicans win both houses. Logistics remain unclear as to how the dividends would be funded or issued, especially given Trump’s “condition” that they could only be spent in America, with Trump saying that “we don’t want you going to Canada to spend the money. We don’t want you going to China, to Germany.” Of course, money is fungible, and a $5,000 “America coupon” allows Americans to spend $5,000 elsewhere, especially on their favorite shiny imports. However, regardless if the midterms mark a turning point in the Trump Administration or not, it is possible that they will at least mark an inflection point in the war overseas.

Brent crude oil prices are stretched in part due to the continued hostilities in the Middle East, but American voters generally care more about gasoline prices than military intervention on the other side of the world, and with gasoline prices headed higher and equity prices headed lower, it doesn’t look good for the GOP. This past Tuesday, Trump “truthed” that “Oil prices will drop precipitously, like everything else is dropped, when we WIN the war with Iran. Three Dollars a gallon, but ultimately, below Two Dollars a gallon. It will all happen quickly, and Iran will never have a Nuclear Weapon. MAGA!” and later told reporters that “the war is going to end immediately after the election because [Iran] can’t hold out any longer.”

HISTORY: diesel has crossed $6/gal nationally for the first time ever, according to live GasBuddy data. every truck, every delivery, every package, every grocery run just got more expensive. the cost of moving everything in america just hit a record. Statement⬇️ (9/10/26, 3p CT) pic.twitter.com/zijqu6vD9i

— Patrick De Haan (@GasBuddyGuy) September 10, 2026

But American voters want lower prices now, and Iran is well aware of the US electoral calendar. Even as Trump shares his timeline for when he wants to wrap up the war in Iran, the IRGC has an incentive to escalate going into the midterms and drag out the conflict for as long as possible. The Wall Street Journal recently reported that VP Vance and Secretary of State Rubio estimate that the war could last through January 2029—creating additional problems for both of them, who may put their names on the presidential ballot in 2028.

In the meantime, energy prices screaming higher and inflation expectations are soaring. If Trump wants Fed cuts going into the midterms, the market expects him to be disappointed. The US OIS curve implies investors are pricing in more than a 70% chance of a hike (17.7bp) at the September 16 FOMC rate decision. This still stems from Warsh’s generously forward-guidance-laden speech at Jackson Hole two weeks ago, but renewed fears about the war in Iran have further stoked the markets’ hawkish bias. That said, economists surveyed by Bloomberg see things differently, with 66 out of 78 analysts forecasting a hold, including ourselves. Read more from Rabobank’s resident Fed whisperer, Philip Marey, here.

Hawkish expectations are shared across the pond after the ECB announced its decision to raise the deposit facility rate by 25bp to 2.50%, with ECB President Lagarde referring to the decision as a “no-brainer.” Rabobank’s ECB watcher Bas van Geffen argues in an ECB Post-Decision Report that “the ECB is now at the top end of the neutral range, and any next policy decision will be a trade-off between the risks that face the Eurozone economy,” and therefore urges caution with regard to future policy hikes. Nonetheless, OIS curve pricing implies investors are positioned for more than four ECB hikes by July 2027. Rabobank sees 2.50% as the terminal rate and does not forecast any additional hikes or cuts through the end of 2027, though the upside risks to our view have increased.

Canadian PM Mark Carney has apparently been speaking to Trump in recent days, but not necessarily about trade…rather, about Ukraine. Bloomberg reports that Carney and Zelenskyy spoke at a joint press conference yesterday, during which both parties signed a “declaration of a 100-year partnership…and Canada pledged to boost its drone production capacity and send one-third to Ukraine.” Other promises include Canada’s launch of a national drone marketplace and increased industrial cooperation between Canadian and Ukrainian drone and defense manufacturers.