European equities advanced on Wednesday, supported by declining global bond yields, the outcome of the US midterm elections and lower oil prices.
In the US, Democrats secured control of both chambers of Congress, raising the prospect of political gridlock and tighter constraints on President Trump’s fiscal agenda.
Expectations of more restrained spending have eased some concerns over future Treasury issuance, prompting a rotation into government bonds and pushing US yields and the dollar lower.
European yields followed, though their decline could be more limited.
Banks and renewable energy stocks led gains. Domestic equities benefited from a rotation towards companies with greater exposure to local markets, while lower borrowing costs could ease credit conditions.
Renewable energy companies gained on expectations that a Democratic-controlled Congress could favour policies supporting the energy transition, although any new legislation would still need White House approval.
Automotive stocks showed signs of recovery after a difficult September and October, with Continental advancing strongly after raising its profitability targets for 2026. Meanwhile, Heidelberg Materials rallied after reporting better-than-expected third-quarter results.
The macroeconomic backdrop remains challenging. Monthly Eurozone inflation slowed, but the annual rate rose to 4%, well above the ECB’s 2% target. Markets are pricing in an interest rate increase in December. In France, persistent fiscal and political uncertainty could limit further gains in domestic equities and remains a broader risk for European markets.
Across the Atlantic, Friday’s US nonfarm payrolls report is the next major test for global markets. A strong reading could rebuild expectations of further Fed tightening and put renewed pressure on global equities.
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