European Markets Rally as US Midterm Outcomes Fuel Risk‑On Sentiment

Following the US midterm elections and the Democrats’ takeover of Congress, market sentiment has shifted markedly in favor of European assets. While Wall Street remains cautious amid tech‑sector concerns and potential AI‑budget cuts, European bourses are experiencing a wave of optimism. Indices in Italy and Spain are up roughly 2.5‑3%, and the broad Euro Stoxx 50 has risen by almost 2% as volatility eases. The rally is underpinned by capital flowing into US Treasuries and a weakening dollar.

Investor focus has also turned to accelerating inflation in the eurozone, where the Harmonised Index of Consumer Prices climbed to an annual rate of about 4%, its highest level in three years. The surge is largely driven by a more than 20% jump in energy costs, while PMI readings have slipped to multi‑month lows. This combination leaves the European Central Bank in a delicate position as it prepares its next monetary‑policy decision. Meanwhile, Sweden’s Riksbank has already tightened policy, raising its key rate by 25 basis points to 2% and signaling further hikes.

FX Market

The US dollar came under heavy selling pressure, posting its weakest session since September and losing ground against all major currencies. Markets are now pricing a more restrained fiscal‑spending agenda from the new Congress, which weighed on the greenback’s valuation. As a result, EUR/USD rebounded toward the 1.12 level and GBP/USD climbed to around 1.35. Antipodean currencies also surged, with the New Zealand and Australian dollars each gaining roughly 0.7% versus the slipping dollar. The dollar’s decline was also evident in emerging‑market pairs, with USD/PLN falling back to about 3.91.

Commodities Market

• Gold: the metal jumped nearly 3%, breaking the $4,000 threshold as a weaker dollar and lower bond yields boosted its appeal.
• Silver: strong gains in precious and industrial metals lifted silver by more than 4.5%.
• Brent crude: fell by just under 2% to around $102 a barrel, reflecting the reduced geopolitical premium after the US elections and reports of renewed US‑Iran talks.
• WTI crude: slipped by around 2% to roughly $95 a barrel under the same supply‑risk easing dynamics.
• Natural gas in Europe: a sharp sell‑off of over 6% pushed the price below €89/MWh.

European Equities

The financial sector led the rally, advancing by close to 4% on expectations that the ECB will keep rates higher for longer and that cheap European lenders will attract fresh capital. Utilities, consumer‑goods and telecommunications also posted solid gains of more than 2%. The only sector in the red was technology, which edged down less than 0.3% amid caution over AI‑related spending.

• Ahold Delhaize (AD.NL): the stock was rewarded for solid quarterly results, a €1 billion share‑buyback announcement and plans to acquire Tesco stores in the Czech Republic and Slovakia, lifting the share by over 5.5%.
• Bayer (BAYN.DE): gains persisted after a robust Q3, further supported by improved sector sentiment following Novo Nordisk’s upward guidance, adding more than 3%.
• Siemens Energy (ENR.DE): the shares corrected after recent multi‑month highs, as post‑election uncertainty over US infrastructure spending weighed, causing a decline of less than 3%.
• Rheinmetall (RHM.DE): a Democratic victory in Congress heightened concerns about tighter oversight of military spending and pressure to de‑escalate conflicts, pulling the stock down by around 2%.
• ASML Holding (ASML.NL): valuation pressure emerged amid investor worries about slowing capex for data centers and AI chips in the United States, resulting in a drop of over 1.5%.

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