European shares recover after US midterm vote

European shares bounced on Wednesday after US midterm elections delivered no big surprise, while a string of solid earnings updates and a rally in Spanish banks on a favourable tax ruling also provided relief. The pan-European STOXX 600 benchmark rose 1.1 per cent to a three-day high in a broad-based rebound that saw all major country and sectoral indexes trade in positive territory in morning deals.

Democrats rode a wave of dissatisfaction with President Donald Trump to win control of the US House of Representatives on Tuesday, giving them the opportunity to block Trump's agenda and open his administration to intense scrutiny.

“With the Democrats taking over the House we will now have to see what gridlock in Congress means for policy. As for the market impact, a split Congress has historically been bullish for equities and we expect to see the same pattern again,” said Torsten Slok, Chief International Economist of Deutsche Bank. “It is too early to predict where policy will go ... What matters for markets is what will happen to trade policy, health care policy, immigration policy, and fiscal policy,” he said.

Company results announcements drove the biggest movers on the STOXX 600, with Delivery Hero and Ahold rising 8.4 and 5.3 per cent, respectively, after strong updates. Adidas fell 2.7 percent after the sportswear company cut its revenue target due to a fall in sales in western Europe. Weaker than expected revenue growth sent shares in the world's biggest security firm G4S down 10 per cent to its lowest level since August 2016.

In the spotlight were also Spanish banks after the Supreme Court ruled on Tuesday that lenders were not required to pay stamp duty on mortgages, sparing them from potentially having to reimburse billions of euros to borrowers who for years have paid the tax themselves. Shares in Sabadell, BBVA, Santander and Bankia all rallied between 2.8 and 4.1 per cent.

“The Supreme Court decision to maintain the status quo on the mortgage tax has removed a tail risk and restored the much-needed legal security for the banks to continue operating in the long-duration business of mortgage loans,” broker Alantra said in a note.

Topping the leader board were shares in dialysis care services provider Fresenius Medical Care, which rose 8.7 per cent after a vote in California defeated a proposition to cap the profits of dialysis clinics. Healthcare stocks rose 0.8 per cent, as results of mid-term U.S. elections were seen as reducing the likelihood of legislative action to cut medical costs in the world's biggest and most profitable market.

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