London stocks rallied on Wednesday, with the FTSE 100 climbing 1% at midday as banking and precious metal shares surged following the Democrats’ sweeping victory in the US midterm elections, while stronger UK services activity provided further support for investor sentiment.
The FTSE 100 advanced 110.52 points to 10,748.95, recovering much of Tuesday’s sharp decline. The FTSE 250 gained 190.48 points, or 0.8%, to 24,865.39, while the AIM All-Share rose 0.9% to 761.13.
Mining companies were among the strongest performers, benefiting from a sharp rise in precious metal prices as the US dollar weakened following the election results.
Gold climbed approximately 3%, while silver surged 4.4% and copper advanced 0.6% during early trading, supporting a strong recovery across London’s mining sector.
Precious metal producers gained approximately 6.6%, putting the sector on course for its strongest session in nearly three months.
Banking shares also rallied, rising around 4.3%, as investors prepared for Thursday’s Bank of England interest rate decision, with markets expecting a quarter-point increase.
The gains followed confirmation that Democrats had secured control of both chambers of the US Congress, delivering a significant political setback for President Donald Trump and changing the legislative balance for the final two years of his presidency.
The party captured several previously Republican-held Senate seats, including victories in Texas, Kansas, Ohio, Iowa and the Carolinas.
The election outcome could increase congressional oversight and constrain parts of Trump’s legislative agenda, although the President retains veto powers and Democrats lack the Senate supermajority generally required to overcome a filibuster.
Raphael Olszyna-Marzys, international economist at J Safra Sarasin Sustainable Asset Management, suggested that the decisive outcome reduced uncertainty surrounding a potentially disputed election.
He also cautioned against overstating the immediate policy implications, noting that the President retains considerable influence over legislation and foreign policy.
UK economic data provided further support for financial stocks, with the services sector recording its strongest growth in eight months.
According to S&P Global, the UK services purchasing managers’ index rose to 52.8 in October from 52.1 in September, marking a fourth consecutive month of expansion.
The reading was below the preliminary estimate of 53.1 but remained comfortably above the 50-point threshold separating growth from contraction.
Stronger new orders helped support activity, while increased employment and continued cost pressures reinforced expectations that the Bank of England could raise interest rates.
Eurozone inflation also accelerated, reaching 4% in October from 3.8% in September, according to preliminary Eurostat figures. The increase was driven largely by energy costs, which rose 21% year-on-year, compared with 19% in September.
Services inflation edged higher to 3.3%, while core inflation remained unchanged at 2.5%.
The figures highlight the continuing challenge facing European central banks, with elevated energy prices threatening to keep inflation above target despite concerns about slower economic growth.
In London, Lion Finance Group climbed 4.8% after reporting stronger third-quarter earnings.
The banking group said pre-tax profit increased 22% to GEL790.9 million, while net interest income rose 19% to GEL941.7 million.
Lion Finance also announced a third-quarter dividend of GEL3.25 per share, payable on 18 December.
HSBC and Standard Chartered both advanced 3.3%, contributing to the broader rally across banking shares.
However, Weir Group plunged 7.5% after its third-quarter trading update disappointed investors.
The engineering company reported a 26% organic decline in original equipment revenue, although overall organic growth remained positive at 5%.
Management said underlying demand from mining customers remained healthy but warned that geopolitical uncertainty could create additional short-term pressures.
Defence companies were also weaker, with BAE Systems falling 4.8% and Babcock International declining 3.1%, as investors assessed the implications of Democratic control of Congress for future US defence spending.
Among mid-cap companies, Metro Bank Holdings surged 12% after reporting growth in gross loans and advances to customers.
Smaller companies delivered mixed performances, with Smiths News falling 9.1% following weaker annual results.
The newspaper and magazine distributor reported pre-tax profit of £32.1 million, down 15%, while revenue slipped 2.6% to £1.04 billion.
Despite the decline, the company proposed a final dividend of 3.90p per share, taking its total annual distribution to 5.65p, compared with 5.55p last year.
Wall Street futures pointed towards a strong opening, with the Dow Jones Industrial Average expected to gain 1.4%, while the S&P 500 and Nasdaq Composite were both forecast to rise approximately 1%.
In currency markets, sterling strengthened to $1.3480 against the US dollar, compared with $1.3416 on Tuesday, while the euro advanced to $1.1248.
US Treasury yields were relatively stable, with the 10-year yield easing to 4.93%.
Brent crude slipped to $102.24 a barrel, compared with $103.24 on Tuesday, as investors continued monitoring tensions between Washington and Tehran following renewed US military strikes on Iran.
Meanwhile, gold traded at $4,041.88 an ounce, up from $3,933.38 at Tuesday’s London close.
The FTSE 100’s recovery reflected renewed demand for banking and mining shares following the US election results, with stronger precious metal prices and expectations of higher UK interest rates providing support.
However, weakness across engineering and defence stocks demonstrated that the election outcome was producing contrasting reactions across different sectors.
Attention will now turn to Thursday’s Bank of England interest rate decision, further US employment figures and developments in the Middle East, as investors assess whether London’s recovery can continue through the remainder of the week.
