GLOBAL MARKETS-AI stocks fall, oil bounces back after 'blue wave' drop

By Amanda Cooper

LONDON, Nov 5 (Reuters) - Chip stocks fell on Thursday, under pressure from concern about the possible restraint on the AI buildout from a Democrat-controlled US Congress, while oil bounced, as investors weighed up how soon the Iran war could realistically end.

Brent crude futures were up around 2.5% at $96.8 a barrel, having tumbled nearly 9% overnight, falling below $100 a barrel for the first time in two months.

The turnaround in oil prices helped boost the dollar, which had fallen along with US Treasury yields.

The MSCI All-World index .MIWD00000PUS was flat on the day, having surrendered earlier gains, while Europe's STOXX 600 .STOXX rallied another 0.4%, leaving the index just shy of August's record high.

"When it comes to the headline result, it’s not too different from investor expectations beforehand, even if the scale of the Democratic victory was bigger than expected," Deutsche Bank strategist Jim Reid said.

"In many respects, the overall rally fits into the classic midterm pattern we’ve previously highlighted. After all, in 20 out of 20 midterm elections since World War Two, the S&P 500 has been higher one year later," he said.

Overnight on Wall Street, the benchmark indexes rallied as investors took heart from the clear outcome, with the S&P 500 .SPX closing 1.6% higher, although tech stocks continued to struggle as investors feared greater scrutiny over AI infrastructure build-out.

The Philadelphia semiconductor index .SOX fell 3.1%, having lost a quarter of its value in a month.

Democrat data centre opponents who campaigned, in part, on moratoriums on data centre construction won victories in Texas and Georgia.

Futures on the Nasdaq 100 were down 0.8%, while those on the S&P itself were up 0.1%.

SELL CHIPS, BUY BANKS

Tech stocks in Europe make up a smaller part of the broader market, which is more heavily dominated by banking shares and drugmakers. Those sectors jumped on Thursday. Within the regional tech sector, semiconductor-exposed stocks such as ASML ASML.AS, Soitec SOIT.PA and Infineon IFXGn.DE fell between 3% and 8%.

Masahiko Loo, chief fixed income strategist at State Street Investment Management, said Democratic control raises the prospect of tougher scrutiny around data centres, power demand and consumer costs, but does not mean a free hand as President Donald Trump retains veto power.

"The blue wave therefore raises the political risk premium around US AI without necessarily derailing the broader AI capex cycle," he said.

Renewable energy stocks, which have been targeted by the Trump administration over the past nearly two years, rallied, with Denmark's Orsted ORSTED.CO and Vestas VWS.CO up 5.3% and 2.3%, respectively.

OIL REVERSES COURSE, IRAN OUTLOOK UNCERTAIN

Crude oil, meanwhile, was last up 2.5% on the day, at $97 a barrel, having lost nearly 10% in two days, as traders chose to bet that Trump, facing a Democratic Congress and hurt by high energy prices caused by the Mideast conflict, would be less likely to escalate the war with Iran.

Trump acknowledged on Wednesday that the war played a role in Republicans' defeat and his vice president, JD Vance, was even more blunt on X: "The reason we lost is the war."

With the dollar and oil under pressure, gold traded above $4,100 an ounce, having risen 5% in two days, its largest two-day jump since early April.

Bond prices eased from the day's highs, in line with the rebound in the crude price, leaving yields on benchmark 10-year US notes unchanged on the day at 4.89%.

In currencies, the dollar edged into positive territory, gaining on the euro , which held at $1.1222, and against the pound, which held at $1.3466 after the Bank of England raised interest rates for the first time since 2023 and signalled more may be necessary if the Iran war continues.