London stocks fell in early trading on Wednesday following the US midterm elections, with the FTSE 100 slipping 0.1% as a weaker dollar and falling defence shares weighed on the index, although stronger precious metal prices provided support for mining companies.
The FTSE 100 declined to 10,631.96 in early trading, extending Tuesday’s 1.1% fall, while the domestically focused FTSE 250 slipped 0.1% to 24,660.35.
The US dollar weakened approximately 0.5% against both sterling and the euro following the Democratic Party’s election victories, which saw it secure control of both chambers of Congress.
The dollar’s decline created a headwind for the FTSE 100, where many multinational companies generate substantial earnings overseas. A weaker US currency reduces the sterling value of dollar-denominated profits when translated into pounds.
Mining shares were among the strongest performers as precious metal prices rallied, supported by the weaker dollar and lower US Treasury yields.
Gold rose 2.9%, silver jumped 4.4% and copper gained 0.6%, helping lift several of London’s largest mining companies.
Fresnillo advanced 3.6%, Endeavour Mining gained 3.5% and Anglo American climbed 2.3%, recovering some ground following recent weakness across the metals sector.
Banking stocks also strengthened, with the sector gaining approximately 2.8%. HSBC advanced 2.7%, while Standard Chartered rose 2.5%.
However, defence and aerospace shares came under pressure as investors assessed whether Democratic control of Congress could constrain future US military spending.
BAE Systems fell 5.2% and Babcock International declined 2.9%, reflecting uncertainty surrounding defence budgets and the outlook for government contracts.
Engineering group Weir dropped 7.1% despite maintaining its full-year guidance, as investors focused on organic order growth of 5%.
Analysts at Jefferies suggested that order growth within Weir’s Minerals division was weaker than that of some industry peers, contributing to the sharp decline.
Renewable energy companies performed strongly across Europe, as investors reassessed the potential implications of the US election results for clean energy investment and regulation.
Danish wind turbine manufacturer Vestas Wind Systems climbed approximately 5%, while offshore wind developer Ørsted surged 7.4%.
German wind turbine company Nordex also advanced 6.5%, reflecting renewed interest in the sector following a period of policy uncertainty.
Major US technology companies faced selling pressure in European trading, with Amazon, Alphabet, Microsoft and Meta Platforms among the companies moving lower.
Tesla also weakened as investors considered the potential for increased congressional scrutiny of technology companies and the future direction of US economic policy.
The early market reaction highlights the contrasting impact of the US election results across different sectors, with precious metals, banks and renewable energy companies attracting buyers while defence and selected technology stocks declined.
Although Democratic control of Congress could influence government spending priorities and regulatory oversight, major legislative changes would still face constraints from President Donald Trump’s veto powers and Senate procedures.
Attention will now turn to further developments in US financial markets, the direction of the dollar and Thursday’s Bank of England interest rate decision, as investors assess the broader implications of the American midterm elections.
