US, Europe stocks enjoy relief rally after midterm vote

London:  Stock markets on both sides of the Atlantic charged higher Wednesday after the US midterm elections produced no major surprises, triggering a relief rally.

"Financial markets are continuing their forward drive on the realization that investors were rightly positioned for the outcome of the midterm elections," said Jamel Ahmad at FXTM.

The dollar, however, slid against main rivals as investors expected a Democrat-controlled House of Representatives to provide "a potential roadblock to President Trump introducing further fiscal stimulus", he said.

'Relief'

In the US, President Donald Trump's Republican party maintained its control of the Senate following Tuesday's vote but the Democrats regained power in the House of Representatives.

Broadly in line with forecasts, the outcome means that Trump faces a tough two years before his expected 2020 re-election bid, with Democrats appearing ready to fight against his tax-cutting, deregulation agenda and boost oversight of the White House.

Wall Street's top three stock indices were all solidly higher in the late New York morning.

Patrick J. O'Hare at Briefing.com said the rise in stocks "likely speaks to the relief that the election is done and that the overall result went as expected."

He added: "That fact has removed an element of uncertainty, which has added to market volatility in recent weeks."

The broad-based recovery in European stock markets suggests that "investors are hoping that a split Congress will mark the end of Trump's protectionist agenda, as least as far as Europe is concerned", said Simona Gambarini at Capital Economics.

'Good outcome'

Other analysts pointed to the consequences of the Democrats holding the House and Republicans the Senate.

"The split Congress means that there is more likely to be gridlock, which will significantly curtail (Trump's) legislative agenda," said James Knightley, chief international economist at ING.

While he pointed out that the two sides could possibly work together in areas such as infrastructure spending, he said "for the most part divisions between and within the parties mean that progress will be difficult.

"For example, President Trump's proposal on additional income tax cuts has received a major blow because of the election result."

But such a scenario could mean less pressure on the Federal Reserve to raise US interest rates more aggressively, taking some heat out of the dollar.

The central bank's drive to tighten borrowing costs to offset a resurgent US economy has weighed on global stock markets in recent weeks.

Nader Naeimi, head of dynamic markets at AMP Capital Investors in Sydney, saw the elections result as a "good outcome" for the world economy.

Doubling down on tariffs

"When you look at... the expectations of more fiscal spending in the US adding to more pressure on debt and debt issuance, having a split government now with more checks and balances is actually a positive set-up for markets."

Earlier in Asia, the tone was somewhat less upbeat given the overhang of US-China trade war fears. Hong Kong's main stocks index finished 0.1 percent higher after swinging through the day, while Shanghai ended 0.7 percent down and Tokyo shed 0.3 percent. Sydney added 0.4 percent.

Neil Wilson, chief market analyst at Markets.com, said that Trump's long-running trade war with China would be unlikely to be affected by the vote outcome, meaning tit-for-tat tariffs will continue, eventually squeezing US consumers.

"A split Congress will, in all likelihood, not stop Trump from doubling down on tariffs with China. This could result in us getting all the anti-growth measures of Trump without more of the pro-growth reforms," he argued.

Key figures around 1640 GMT

New York - Dow: UP 1.1 percent at 25,912.12 points

London - FTSE 100: UP 1.1 percent at 7,117.28 (close)

Frankfurt - DAX 30: UP 0.8 percent at 11,579.10 (close)

Paris - CAC 40: UP 1.2 percent at 5,137.94 (close)

EURO STOXX 50: UP 1.2 percent at 3,246.16

Tokyo - Nikkei 225: DOWN 0.3 percent at 22,085.80 (close)

Hong Kong - Hang Seng: UP 0.1 percent at 26,147.69 (close)

Shanghai - Composite: DOWN 0.7 percent at 2,641.34 (close)

Euro/dollar: UP at $1.1470 from $1.1416 at 2120 GMT

Pound/dollar: UP at $1.3151 from $1.3097

Dollar/yen: DOWN at 113.30 yen from 113.46 yen

Oil - Brent Crude: DOWN 47 cents at $71.66 per barrel

Oil - West Texas Intermediate: DOWN 80 cents at $61.41