Europe open: Stocks rally as investors assess implications of US midterms

(Sharecast News) - European stocks rose in early trade on Wednesday as investors mulled the implications of the Democrats' sweeping victory in the US midterm elections.

At 0950 GMT, the benchmark Stoxx 600 index and France's CAC 40 were both up 0.9%, while Germany's DAX was 1% higher.

Russ Mould, investment director at AJ Bell, said: "Investors are trying to get their heads around what a Democrat landslide in the US mid-term elections means for financial markets, with an initial stock sell-off quickly turning into gains.

"Futures prices for Wall Street swung from red to green as investors weighed up what might happen next. S&P 500 futures point to a 0.2% gain when the US market opens, while Dow futures are up 0.5%.

"Theoretically, a divided government can create gridlock for policy changes, but there is a school of thought that Democrats may prioritise pushing through AI regulation.

"Given that AI has been the key to considerable stock market wealth creation in recent years, the prospect of red tape could put the brakes on this hot investment theme. However, a positive market reaction implies that certain investors are welcoming the potential that Trump's political power may be curbed somewhat.

"The big risk is uncertainty around how Trump could act in the coming months following such a result. Gold jumped 2.7% to $4,038 per ounce, which suggests that investors have added a little protection to their portfolio as a 'just in case' precaution. The precious metal may also be responding to incipient fears that the Democrats may go on a spending spree if they get the chance.

"Brent crude nudged 0.3% higher to $103.88 per barrel, perhaps reflecting how Trump may now focus more on foreign policy, where he could have more sway than over domestic matters, and ratchet up tensions with Iran as a result.

"Once the dust settles and the final mid-term results are known, the Trump administration has until 3 January to pass legislation before the new members of the House and Senate take their positions. Then the real horse-trading will begin, with likely hot button topics being spending and the debt ceiling.

"Specific issues such as Medicaid, defence, energy, AI, crypto and banking (de)regulation are all likely to come to the fore as well, but the race to the White House in November 2028 is now and well truly on."

On the macro front, a survey showed that eurozone growth eased to a four-month low in October. The S&P Global eurozone composite PMI output index fell to 51.7 from 53.1 in September. A reading above 50.0 indicates expansion, while a reading below signals contraction.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "October's PMI survey data indicate that the eurozone economy is growing at a respectable though unexciting 0.3% rate at the start of the fourth quarter, building on the robust performance seen throughout the third quarter.

"However, there are worrying signs that the recent growth spell could be losing momentum. New business inflows have slowed to near-stagnation after three months of solid sales growth, and business growth expectations have slipped to their lowest since May.

"Businesses are being buffeted by three headwinds stemming from inflation, geopolitical uncertainty and higher borrowing costs."

In equity markets, 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 midterms would lead to lower spending on defence. Neil Wilson, UK investor strategist at Saxo Markets, said the Democrats' control of Congress "could hold up spending on defence".

BAE Systems, Babcock and Germany's Rheinmetall all slumped.