European stocks rebounded while gold climbed 3% and the dollar fell after Democrats swept both chambers of Congress in the US midterms.
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The US midterms unfolded about as smoothly as anyone could have expected. Signs emerged early that the Democrats would manage a clean sweep, and markets latched onto that story quickly as it came to pass without a hitch.
The party took both chambers of Congress, a setback for Republican rule in Washington. US president Trump sought to play it down, saying he "could collaborate with Democrats on many issues", yet conceded defeat by stating he will "accept the election outcome".
The first response from markets was heavy dollar selling together with a slump in technology shares. The tech move was the notable part, tied as it was to the strongly anti-AI and anti-data centre campaigning that preceded the midterms. Nasdaq futures consequently dropped more than 2% earlier in the session.
Yet as European trading wore on, the losses in US futures were steadily trimmed and a striking reversal was complete before Wall Street's open later. S&P 500 futures now stand 1.0% higher, with Nasdaq futures up 0.4% on the day. A remarkable comeback.
The greenback could not match that recovery, struggling throughout the session. EUR/USD is 0.6% higher at 1.1260, while AUD/USD has also gained 0.6% to 0.7010 on the day.
With the dollar staying soft, gold seized the opportunity, rising 3% and spending most of the session around the $4,030-40 area. The move came alongside an improved risk mood, with European shares also posting firm gains and oil prices easing, while the bond market largely stayed on the sidelines.
Attention now centres on whether Wall Street can sustain the upbeat turn in equities seen during European hours. If it fails to hold, I worry we could slip back to the agenda that preceded the midterms — markets refocusing on AI concerns, with inflation worries also back in the spotlight.
Much therefore depends on what Trump decides next over the war against Iran. Will he treat the election setback as grounds to seek a diplomatic resolution? Or will he escalate military action? The path taken will carry very different consequences for markets. So it is worth keeping an eye on.
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