Stocks welcome Yellen’s call to ‘go big’ on coronavirus spending

LONDON (Reuters) – World equities gained Wednesday on bets of massive U.S. spending after U.S. Treasury Secretary candidate Janet Yellen urged lawmakers to “act big” to bail out the economy and worry about debt in the country. following. Oil rose and the dollar slipped in response.

In his confirmation hearing on Tuesday, Yellen said the benefits of a large stimulus package to tackle the coronavirus pandemic were greater than the costs of a greater debt burden.

Relief from the pandemic would take priority over tax hikes, he said, asking corporations and the wealthy – both winners from Republican tax cuts in 2017 – to “pay their fair share”.

Investors in European equities welcomed the comments, with the Euro STOXX 600 up 0.5% as it gathered steam in morning trading. The indices in Frankfurt and Paris rose 0.5% and 0.2% respectively, although London shares remained unchanged.

Luxury stocks gave the biggest boost, with Richemont’s quarterly sales up 5%, driven by strong growth from its jewelry brands in Asia and the Middle East.

The spirited mood mirrored that in Asia, where the MSCI Asia Pacific Index outside of Japan rose 1% to its all-time high. Hong Kong’s Hang Seng gained 1.1% nearing its 2019 peak. Australian equities hit a record high.

US President-elect Joe Biden, who will be sworn in on Wednesday, last week presented a proposed $ 1.9 trillion stimulus package to revive the economy and accelerate vaccine distribution.

“They realized that there are limits to what monetary policy can do to effect change in the real economy,” said Shaniel Ramjee, Pictet Asset Management’s senior investment manager. “The Fed will continue to buy bonds issued by the US Treasury to finance fiscal programs.”

The MSCI global equity index, which tracks equities in nearly 50 countries, increased by 0.1%.

On Wall Street, Nasdaq futures gained 0.8% as Netflix jumped 12% after the close of strong subscriber growth and projections will no longer need to increase debt. S&P 500 futures also rose 0.4%.

Biden will take office on Wednesday with unprecedented security measures following the January 6 assault on the Capitol.

DEFENSIVE DOLLAR

The dollar slipped for a third consecutive session following Yellen’s comments, losing ground from one month maximum.

Against a basket of currencies, it fell 0.1% to 90.285, after rising 1.2% from a three-year nadir struck two weeks ago.

Positioning data showed that investors are overwhelmingly short of dollars, betting budgets and current account deficits will weigh on the greenback.

“We remain bearish on the US dollar and expect the downward trend to resume when US real yields peak,” said Ebrahim Rahbari, FX strategist at CitiFX.

Safe haven gold rose 0.6% to $ 1,850 an ounce.

The euro lost some ground to trade at $ 1.2116, past its one and a half month low on Monday. He got support from an investor sentiment survey that beat predictions and the Italian government survived a vote of confidence.

On Wednesday, Italy’s benchmark debt costs plummeted in over a week after Prime Minister Giuseppe Conte narrowly managed to hold office, even though he now heads a minority government.

Yields on 10-year Italian government bonds fell to their lowest since January 11 – before Conte lost the majority – to 0.533%, down 2 basis points from the day.

Oil prices have risen in the hope that Biden’s proposed stimulus will boost economic output.

US crude oil futures gained 0.7% to $ 53.65 a barrel. Futures on the international benchmark Brent rose 0.5% to $ 56.37 a barrel.

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Tom Wilson’s reportage in London; Additional reporting by Ritvik Carvalho; Editing by Ana Nicolaci da Costa, Stephen Coates, William Maclean