Bank of England hikes as Asia chips plunge and oil rebounds

The Economist's leader on Thursday calls the midterm result Donald Trump's humiliation and says it offers America an opportunity, while its United States section asks how the Democrats will wield their power now that they hold both chambers. The seat totals reported in this paper's Wednesday editions stand: Senate Democrats 54, Republicans 44, a gain of 7 for Democrats; House Democrats 228, Republicans 139, a gain of 25 for Democrats. Those are media tallies from called races, not final certified results, and a small number of races remained uncalled. The Economist's World in Brief notes that Vice President Vance blames the midterm loss on the Iran war, and its November 5 United States coverage adds that Republicans are in for a brutal presidential contest.

For markets, the question has moved from who won to what the winners do. The Economist's markets item on the midterms frames the trade the same way this paper has: gridlock lowers the chance of large new spending and borrowing, which helps bonds and broad equities, while tighter oversight raises the scrutiny on artificial intelligence spending, which hurts the chip and data center trade first. Both halves of that trade are visible in Thursday morning's prices. What is not yet visible is any legislative programme, and none will exist until Congress convenes in January, so the market is still pricing the idea of divided government rather than any act of it.

Asia's Thursday closes show the chip purge in its purest form. South Korea's KOSPI fell 5.28 percent to 5,383.80, its biggest drop since October 15, with Samsung down 7.6 percent and SK Hynix down as much as 10 percent during the session, on fears that a Democratic Congress could curb artificial intelligence spending. Taiwan's Taiex fell 3.20 percent to 41,574.72, its sixth straight decline and its lowest close since July 31, with MediaTek down 6.86 percent. Japan's Nikkei 225 fell 1.79 percent to 61,077.90, its fourth straight fall, with Advantest down 15 percent and Tokyo Electron down 9.5 percent, while the broader Topix rose 1.16 percent to 3,940.39 on a Toyota rally. SoftBank fell nearly 7 percent in Tokyo after China blocked its $5.4 billion acquisition of ABB's robotics unit, according to the Journal's live page.

The other half of Asia moved the other way, and by a wide margin. Hong Kong's Hang Seng rose 3.67 percent to 24,796.98, its fifth straight gain, with Alibaba and Tencent rallying. Australia's ASX 200 rose 2.61 percent to 9,065.10. India's Nifty 50 rose 2.40 percent to 24,536.60, its sixth straight gain, with the Sensex up 2.8 percent. China's Shenzhen Component added 1.19 percent to 11,471.09, while the Shanghai Composite edged up 0.10 percent to 3,689.91. The split is the same one as Wednesday, only sharper: markets that sell chips fell, markets that buy cheaper oil and a weaker dollar rose, and the same election result is doing both jobs at once.

Europe opened higher and extended Wednesday's gains. In a morning snapshot, the FTSE 100 traded at 10,922.60, up 0.86 percent, the DAX at 26,611.47, up 0.66 percent, the CAC 40 at 8,256.98, up 0.97 percent, the STOXX Europe 600 at 661.43, up 0.61 percent, and the Euro Stoxx 50 at 6,303.50, up 0.60 percent. The STOXX 600 traded near its highest levels since August, building on Wednesday's 1.82 percent gain to 657.40, its highest close since August 26. Wednesday's European closes, for context, were the FTSE 100 at 10,829.21, up 1.79 percent, the DAX at 26,437.67, up 2.22 percent, and the CAC 40 at 8,177.89, up 1.96 percent.

The Bank of England raised interest rates for the first time in over three years on Thursday and warned that at least one more increase was likely if the United States-Iran conflict continues, according to Reuters. The Monetary Policy Committee voted 8 to 1 to raise Bank Rate to 4 percent from 3.75 percent. The dissent came not from a policymaker seeking to hold rates steady, as a Reuters poll had expected, but from Catherine Mann, who voted for a half-point increase to 4.25 percent, concerned about non-linear inflation risks after consumer price inflation reached 3.5 percent in September. The Bank said British inflation is likely to reach around 5 percent in the middle of next year, more than double its 2 percent target, and to return to target only in late 2028.

The decision is the first hike since August 2023 and ends a run of six meetings without a change since the cut in December 2025. Deputy Governor Clare Lombardelli said there is likely to be a case for a further increase in the near term in the absence of evidence of weaker inflation pressures, and markets were pricing three to four further quarter-point rises during 2027, taking Bank Rate to 4.75 to 5 percent. The next decision is on December 17. Governor Andrew Bailey's press conference followed the decision at 12:30 p.m. London time.

The bond market took the hike in stride. The 10 year Treasury yield traded at 4.909 percent on the Journal's morning snapshot, up from 4.87 percent at the previous close, after closing Wednesday at 4.88 percent. Traders were pricing about an 82 percent chance of a December rate increase by the Federal Reserve, whose next decision is due December 9, the same day as the Bank of Canada's next decision. The Bank of Canada held at 2.50 percent on October 28, and the European Central Bank's deposit rate stands at 2.50 percent. The dollar index traded near 101.40 in the morning, close to a five-week low, the euro near 1.1245 dollars, sterling near 1.3492 dollars, and the United States dollar near 1.3951 Canadian dollars, down about 0.38 percent, putting the loonie near 71.7 cents in United States terms.

Two oil tankers and a tugboat caught fire in the Strait of Hormuz on Thursday, Iran's Islamic Revolutionary Guard Corps said, as Iran continues to report a growing number of incidents with vessels trying to transit the Strait on routes it calls unauthorized. One tanker hit a naval mine while attempting to move south of the Strait. Another tanker caught fire as it was on its way out in the eastern part of the Strait, and a tugboat that had approached it to help also caught fire, according to the force. Separately, United Kingdom Maritime Trade Operations, affiliated with the Royal Navy, said on Thursday that it had received a report of an incident 50 nautical miles north of Madinat ash Shamal, Qatar, in which a tanker was struck by two unidentified projectiles. The status of the crew, damage, and environmental impact are unconfirmed at present, UKMTO said. On Wednesday, the Revolutionary Guard Corps said four oil tankers were destroyed after hitting naval mines in an area south of the Strait it calls prohibited for navigation.

Oil fell first, then rebounded, through the morning. Brent futures fell 0.85 percent to $93.82 a barrel as of 04:26 GMT, while West Texas Intermediate fell 1.36 percent to $86.92, in the Reuters report, extending Wednesday's plunge for a fourth day. By 09:00 GMT, Brent had turned up 0.8 percent to $95.40 a barrel, while West Texas Intermediate rose 0.1 percent to $88.23, and the Journal's 8:53 a.m. ET snapshot put crude at $89.27, up 1.31 percent. Brent later traded near $96.82 in the morning. Wednesday's settlements are the base for those moves: Brent settled at $94.62, down 8.67 percent, and West Texas Intermediate at $88.12, down 8.29 percent, both their lowest since August 31. Middle East exports of crude, condensate, and fuels slipped to 17.1 million barrels a day in October, down from 18.9 million in September, according to Vortexa data cited by Reuters.

Metals moved the same way as oil on Thursday, up rather than down. Gold traded at $4,136.80 on the Journal's 8:53 a.m. ET snapshot, up 1.57 percent from Wednesday's December futures settlement of $4,072.30, while silver traded near $52.76 an ounce, up about 0.47 percent, and copper traded near $6.41 a pound. Natural gas was the exception: December futures traded near $2.939 per million British thermal units, little changed from Wednesday's $2.9434 settlement, with the Energy Information Administration's weekly storage report due at 10:30 a.m. ET. The Administration's crude report on Wednesday showed United States crude inventories fell by 865,000 barrels, the fifth straight weekly drop, a figure that mattered little on a day the price was set by the Strait, not the stockpile.

Qualcomm shares dropped nearly 10 percent in premarket trading after the memory crunch hurt sales of smartphone chips, according to the Journal's stocks to watch, with handset chip sales coming in below expectations and Apple-related revenue declining, according to Reuters. Arm slipped about 3 percent in premarket trading even as the chip company reported a 27 percent jump in revenue in its latest quarter, the Journal reported, after royalty revenue missed expectations in Wednesday's after-close report. Zillow fell about 15 percent in premarket trading after reporting a drop in traffic to its apps and sites in what it called one of the toughest housing markets in a generation. Nvidia, Intel, AMD, and Broadcom were all lower in premarket trading as well.

Sony gave Asia its own earnings anchor, and it pointed the other way. Sony reported second-quarter sales up 10 percent to 3,429.4 billion yen and operating income up 45 percent to 622.3 billion yen, both record highs for the quarter, with net profit up 44 percent to 449.6 billion yen, and raised its full-year operating income outlook to 1.87 trillion yen. Shares rose about 7 percent in Tokyo on Thursday. PlayStation operating profit rose 83 percent to 220.1 billion yen, even as PlayStation 5 sales fell to 2.6 million units from 4 million a year earlier, and the film Spider-Man: Brand New Day earned $2.52 billion at the global box office. The company reflected a loss of about 16 billion yen in its forecast from the July 28 Kumamoto earthquake, though operations at the damaged Kumamoto Technology Center have recovered to pre-earthquake levels. Nintendo moved the other way: operating profit declined 16 percent to 73.9 billion yen, below analyst estimates, while the company maintained its full-year profit forecast and its outlook for sales of 16.5 million Switch 2 units.

The rest of Wednesday's after-close slate held up better than the chip names. MercadoLibre reported earnings of $9.45 a share against $9.27 expected, on revenue of $10.75 billion against $10.69 billion expected. Expedia reported earnings of $9.39 a share against $8.85 expected, on revenue of $4.94 billion against $4.73 billion expected, with gross bookings up 11 percent to $34.0 billion, and raised its full-year guidance; its shares rose 10.54 percent on Wednesday. Datadog beat before Thursday's open, with earnings of $0.81 a share against $0.65 expected and revenue of $1.2 billion against $1.15 billion expected. Due on Thursday are Airbnb, ConocoPhillips, Cloudflare, Monster Beverage, Canadian Natural Resources, Atlassian, Cummins, and Rockwell Automation.

Compare Thursday morning to the last six sessions and the shape is a rally, then a rotation, then a second day of rotation. Friday, October 30, was a tech-led fall: the Nasdaq down 2.86 percent, the S&P 500 down 1.82 percent, and the Dow down 1.09 percent. Monday split the tape, with the Dow up and technology down. Tuesday split it again, with the Nasdaq up 0.83 percent and the S&P 500 up 0.36 percent, but the Dow down 0.38 percent and Toronto down 0.75 percent. Wednesday reversed the split and then some, with every major index rising together and the Dow up 3.03 percent. Thursday, so far, reverses Wednesday's breadth without reversing its level: the Dow holds its gain in futures while the Nasdaq gives some back, and Asia's chip markets fall hard while Hong Kong, Australia, and India rise.

The chain linking the drivers runs in order. First, politics: the midterm sweep first hurt chip shares overnight on oversight fears, then lifted broad equities as gridlock and a smaller Iran campaign were priced in, and on Thursday the chip leg of that trade is doing the work while the broad leg holds. Second, oil: Brent's fall from its Friday intraday high of $117.64, through Monday's plunge of more than 7 percent, to Tuesday's $103.60 settlement and Wednesday's $94.62 close, is a drop of about $23 in five sessions, and Thursday's rebound from an Asia low of $93.82 to about $96.82 shows how fast a single Strait of Hormuz report can put a floor under that fall. Third, rates: the Bank of England's hike to 4 percent, with a dissent for more, is the first major central bank to move rates up rather than down in this cycle, and it lands on the same morning that gold pushes past $4,100, a combination that says inflation risk is being repriced even as oil stays far below last week's highs.

What would change the reading is Friday. If the jobs report lands near the 65,000 expected, with unemployment near 4.2 percent, Thursday's chain holds: gridlock, cheaper oil, a first hike from London, and selective technology losses. If payrolls run hot, the yield leg tightens again and the December hike odds above 80 percent become a headwind rather than a backdrop. If the Strait of Hormuz produces a confirmed escalation, oil's rebound becomes a new leg up, not a bounce, and gold's rise becomes the tell that the market never fully believed the relief. The Economist's Thursday items point the same way: its leader calls the midterm result an opportunity, while its markets item treats the trade as a repricing of divided government, not a verdict on it.