European shares recover after U.S. midterm vote; Spanish banks rally

MILAN (Reuters) – European shares bounced on Wednesday after U.S. midterm elections delivered no big surprise, while a string of solid earnings updates and a rally in Spanish banks on a favorable tax ruling also provided relief.

The pan-European STOXX 600 benchmark rose 1.1 percent 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 U.S. 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 (DHER.DE) and Ahold (AD.AS) rising 8.4 and 5.3 percent, respectively, after strong updates. Adidas (ADSGn.DE) 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 (GFS.L) down 10 percent 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 (SABE.MC), BBVA (BBVA.MC), Santander (SAN.MC) and Bankia (BKIA.MC) all rallied between 2.8 and 4.1 percent.

“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 (FMEG.DE), which rose 8.7 percent after a vote in California defeated a proposition to cap the profits of dialysis clinics.

Healthcare stocks .SXDP rose 0.8 percent, 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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