LONDON (Reuters) – Bonds fell and stocks rose Thursday as investors bet Democratic control of the U.S. Congress would allow President-elect Joe Biden to borrow and spend heavily, as a bruised dollar tended to bounce back. from almost three-year minimums.
US Treasuries extended their steepest sell-off in months after Democratic Party wins in two races in Georgia handed them tight control of the Senate, bolstering Biden’s power to approve his agenda.
The European Euro STOXX 600 gained 0.2%, with the Frankfurt and Paris indices of 0.4% and 0.6% respectively. Growth-related sectors from energy to miners rallied on the prospect of further US stimulus, although UK equities turned negative.
The MSCI global equity index, which tracks equities in nearly 50 countries, was up 0.2%.
S&P 500 futures were up 0.4%. A shaken congress in the early hours of Thursday officially certified Biden’s election victory after hundreds of supporters of President Donald Trump stormed the United States Capitol.
Shocking images of the assault on American democracy had previously struck sentiment, although markets focused on the implications of democratic congressional control.
Previously, MSCI’s broader index of Asia Pacific equities outside of Japan had risen 0.4% and the Japanese Nikkei hit its highest since 1990.
“The market is saying that reflation trading is active,” said Justin Onuekwusi, portfolio manager at Legal & General Investment Management.
“The democratic sweep means there will be more flexibility and speed to write a tax check, so a one-time US tax hike is definitely on the cards as a bridge to a post-vaccine world.”
The bond sell-off on Wednesday pushed the yield on benchmark 10-year US Treasuries, which rise as prices fall, over 1% for the first time since March. It was up to 1.0660% on Thursday before turning back. [US/]
Eurozone government bonds followed suit, with the German 10-year Bund yield slightly up to -0.55%. Japanese government bonds also slipped.
The Democrats’ victory also reverberated on the currency markets.
The dollar had plunged on Georgia’s results to a nearly three-year low against a basket of six major currencies, with traders betting on rising US trade and budget deficits would weigh on an already bruised greenback.
It rebounded 0.6% to 89.780 on Thursday, on track for its largest one-day gain since October.
Against the euro it scratched from a nearly three-year low of $ 1.22, and also languished near recent multi-year lows against the Aussie, Kiwi and Swiss Franc.
However, some analysts have said that rising bond yields could help the dollar’s fortunes.
“Higher Treasury yields should benefit the dollar against the euro and the yen,” said Masafumi Yamamoto, Mizuho Securities’ chief currency strategist in Tokyo.
“However, the dollar will remain weaker against commodity currencies such as the Aussie and emerging market currencies.”
Other risky assets have risen, with safe havens like the Japanese yen losing ground.
Copper, a barometer for global growth, gained 0.3% to reach an 8-year high.
In Asia, miners Rio Tinto and BHP previously rose to all-time highs, while chip makers Samsung and SK Hynix took South Korean shares to a record high.
Oil prices held around 10-month highs, basking in the glow of a production cut promised by Saudi Arabia. Brent crude futures remained unchanged at $ 54.25 a barrel.
Gold was stable at $ 1,921 an ounce and bitcoin stopped after hitting a new record high of $ 37,800.
The cryptocurrency has risen more than a quarter this month already, after nearly quadrupling last year.
Reporting by Tom Wilson; Additional reporting by Sujata Rao; Editing by Kirsten Donovan and Toby Chopra