Europe stocks closed higher on Wednesday, picking up the rally mode in global stocks as investors turned to equities to express their relief over the U.S. midterm election results.
What are markets doing?
Germany’s DAX 30 /zigman2/quotes/210597999/delayed DX:DAX -0.70% ended 0.8% higher at 11,579.10, while France’s CAC 40 /zigman2/quotes/210597958/delayed FR:PX1 -1.22% jumped to close 1.2% higher at 5,137.94. The U.K.’s FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX -0.71% closed 1.1% up at 7,117.28.
In Southern europe, Spain’s IBEX 35 index /zigman2/quotes/210597995/delayed XX:IBEX -2.21% ended 2% higher at 9,167.90, and Italy’s FTSE MIB Italy index /zigman2/quotes/210598024/delayed IT:I945 -1.09% gained 1.4% to end at 19,540.94.
The euro /zigman2/quotes/210561242/realtime/sampled EURUSD -0.0675% rose to $1.1445 from $1.1427 in New York on Tuesday, while the pound /zigman2/quotes/210561263/realtime/sampled GBPUSD +0.0232% rose to $1.3135 from $1.3099, with both currencies improving thanks to a weaker U.S. dollar.
What is driving the market?
U.S. midterm elections were pretty much in line with forecasters’ predictions, delivering a divided Congress with Democrats taking control of the House and Republicans maintaining their grip on the Senate. While those results may make it tough for President Donald Trump to push his legislative agenda through, for now, investors were upbeat as any immediate uncertainty fades.
But investors are likely to also turn their attention to a two-day Federal Reserve meeting that wraps up on Thursday, though the central bank isn’t expected to make a move on interest rates. Trade-war issues may also rise to the surface once election news settles.
In Europe, Germany’s council of economic experts said growth is expected to slow this year due to higher trade risks and greater global uncertainties, highlighting the dependence of Europe’s economic powerhouse on international trade.
What are strategists saying?
“Perhaps investors are just happy at the thought of a political deadlock in Washington, the kind which will prevent any apple-cart upsetting legislation getting passed—though there is the worry that a domestically frustrated Trump could now chase a U.S.-China trade war even harder,” said Connor Campbell, financial analyst at SpreadEx.
“The Fed meeting gets underway today and while no change in interest rates is expected this month – in fact, it’s heavily priced out – we will get our first collective insight into if and how the central bank will respond to recent financial market volatility, especially as it was seemingly initially triggered by Chairman Powell’s comments,” added Craig Erlam, senior market analyst at OANDA.
Banks were among the leading gainers, with BBVA SA /zigman2/quotes/204078760/composite BBVA -3.53% /zigman2/quotes/209653399/delayed ES:BBVA -4.43% rising 1.7% into the close. Banco Santander SA /zigman2/quotes/202859081/composite SAN -3.35% UK:SAN -2.25% rose throughout the session but finished the session 1% lower. Gains for Spanish financial institutions came as the country’s Supreme Court said that customers, and not banks, would have to pay a mortgage-related tax, potentially saving the financial institutions from billions of euros in compensation.