Europe close: Mid-term election rally sends Stoxx 600 to highest since August

(Sharecast News) - Stocks surged across Europe on Wednesday and oil prices sank as global financial markets reacted to the Democrats' sweeping victory in the US mid-term elections, with the Stoxx 600 hitting its highest in nearly three months.

The pan-European benchmark jumped 1.8% to 657.40 - its highest close since 14 August - with all major indices across the region posting impressive gains. In particular, indices in Frankfurt and Milan both rose 2.2%, while Madrid's IBEX 35 surged 3.0%.

Over on Wall Street, the Dow Jones Industrial Average surged 1,500 points (+2.9%) in morning trade as investors reacted to the Democratic Party's landslide victory in the mid-term elections.

With the Democrats now in control of both the House and the Senate, many anticipate greater constraints on Donald Trump's legislative and foreign policy agendas, particularly given how the Iran war and higher fuel prices factored into voting across the country.

"Worries about AI spending and the war in Iran have evaporated as swiftly as Republican hopes of holding on to the Senate. Stock markets have indulged in a frenzy of buying now that the 'clearing event' of the mid-terms is out of the way," said Chris Beauchamp, chief market analyst at IG.

"This turnaround might seem odd to even to the most cynical market veteran, but investors really do seem to love the prospect of a US government bogged down in infighting between the executive and the legislature. Maybe we can finally get on with that post mid-term rally after all."

Meanwhile, oil prices dropped nearly 9% as investors grappled with how the mid-term election results may impact diplomatic efforts between Washington and Tehran, hoping that political constraints on Trump may bring about the end of the war. Front-month Brent crude was down over $9 at $94.25 a barrel by the close, hitting its lowest since early September.

Back in Europe, rate-hike expectations rose on Wednesday after Eurostat data showed that eurozone inflation hit a three-year high in October amid rising energy costs. The annual rate of consumer price inflation increased to 4% from 3.8% in September, marking the highest inflation rate since September 2023 and above expectations of 3.9%.

Energy inflation rose to 20.8% in October from 18.9% the month before, while services inflation was 3.3%, up from 3.2%. Food, alcohol and tobacco inflation rose to 1.6% from 1.3%.

In equity movements, renewable energy stocks across Europe were in demand on increased hopes that US energy policy may turn back in their favour given the Republicans' overnight defeat. Vestas, Ørsted and Nordex were all putting in a solid performance.

Banking stocks also performed well, with Commerzbank, Santander, NatWest, UBS and BNP Paribas posting solid gains.

Novo Nordisk rallied after the Danish drug maker lifted its full-year guidance, pointing to continued momentum in GLP1s. The company now expects 2026 adjusted sales and operating profit to decline by 2% at constant exchange rates in a worst-case scenario, or rise by 2% in a best-case scenario, having previously guided to a drop of as much as 6% for both.

On the downside, defence stocks were under the cosh amid expectations the outcome of the US mid-terms would lead to lower spending on defence. BAE Systems, Babcock and Germany's Rheinmetall all slumped.