European markets are poised to open higher on Thursday, tracking a broad rally on Wall Street that followed the US midterm elections. The Dow Jones Industrial Average jumped more than 3% on Wednesday as investors welcomed the prospect of a divided government in Washington, with the Republican Party losing its sole control of Congress.
The upbeat mood is likely to lift indices from Frankfurt to Paris and Amsterdam, though traders remain cautious about persistent volatility in technology stocks and geopolitical tensions. In Asia, markets were mixed: Hong Kong's Hang Seng surged 2.8% to 24,597.59, while the Shanghai Composite edged up 0.1%. Australia's S&P/ASX 200 climbed 1.9% to 9,003.40.
AI sell-off continues
But the euphoria was tempered by another sharp sell-off in artificial intelligence-related shares. South Korea's Kospi briefly plunged more than 4% before recovering slightly to trade 3.5% lower at 5,484.38. Samsung Electronics sank 5.7%, and memory chipmaker SK Hynix lost 7.4%. In Tokyo, the Nikkei 225 fell 0.5% to 61,914.53, with SoftBank Group shedding 5.3%, Tokyo Electron skidding 7.7%, and Advantest tumbling 9.4%. Taiwan's Taiex also dropped 1.6%.
The losses reflect growing investor anxiety that the AI boom may have pushed valuations too high, especially after the midterm setback for President Donald Trump, a vocal backer of the industry. A Democratic-controlled Congress could scrutinise AI companies more closely, adding to regulatory uncertainty.
Trump's business empire under pressure
Trump's own business interests took a hit on Wednesday. Trump Media & Technology Group, parent of Truth Social, plunged 24.5% to $4.49, down from a peak of $175 five years ago. Elon Musk's ventures also struggled: Tesla fell 3.3% and SpaceX dropped 3.8%. Musk, a former top Trump adviser, could face investigations by Democratic-led committees.
The political shift also weighed on defence and oil stocks. Lockheed Martin sank 6.9%, Northrop Grumman fell 4.5%, and General Dynamics lost 2.6%, as investors bet that a Democratic Congress might push for a pullback in the war with Iran. ExxonMobil dropped 4.6% and ConocoPhillips 5.2%.
For Europe, the midterm outcome carries significant implications. A weakened Trump administration may be less predictable on trade and security, as our analysis of the transatlantic fallout explains. Meanwhile, the prospect of a more dovish US energy policy could ease pressure on European energy prices, as we noted earlier.
In currency markets, the dollar slipped to 157.96 yen from 158.41 yen, while the euro strengthened to $1.1256 from $1.1228. Brent crude traded near $94 a barrel, close to a two-month low.
Investors will now watch European indices for direction, with the DAX and CAC 40 expected to open higher. However, the AI sell-off and geopolitical risks could quickly dampen sentiment.
