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Global stocks hit a record Monday and the dollar remained weak as expectations for better global trade ties and more monetary stimulus under US President-elect Joe Biden supported risk appetite.
Passers-by in protective masks walk past a screen displaying Nikkei stock average and world stock indices outside a broker amid the coronavirus disease (COVID-19) outbreak in Tokyo, Japan, on April 5. October 2020. REUTERS / Issei Kato
MILAN / SYDNEY: Global stocks hit a record Monday and the dollar remained weak as expectations for better global trade ties and more monetary stimulus under US President-elect Joe Biden supported risk appetite.
Markets began trading with the prospect of a Biden presidency and a Republican-controlled US Senate last week, but the Democratic candidate’s projected victory on Saturday gave more fuel to the measure.
The MSCI World Equity Index, which tracks stocks in 49 countries, rose 0.5% to an all-time high in Europe’s early hours. On Friday, it posted its biggest gain in a week in nearly seven months.
E-mini futures for the S&P 500 rose more than 1.4% on Monday. Nasdaq futures rose more than 2% to just below an all-time high, signaling a positive start for US markets.
MSCI’s broader index of Asia Pacific stocks outside of Japan rose 1.3% after reaching its highest level since January 2018. The pan-European STOXX 600 rose 1.5% to a month-long high at 0846 GMT.
“Why the excitement? Hopes of less diplomatic and commercial distress, a lower dollar helps global rebalancing,” Chris Bailey, European strategist at Raymond James in London, said in a note. “Much hope … but more than two months to the opening day!”
Stocks rallied last week, with the S&P 500 rising 7.3%, posting the best election week gain since 1932, according to National Australia Bank analyst Tapas Strickland.
Investors expect Republicans to maintain control of the Senate, which will make it difficult for the Biden administration to push through major policy changes, from a planned tax increase to a large fiscal stimulus package.
That would mean better earnings prospects for companies exposed to the world’s largest economy, but also that the US Federal Reserve may have to step in to ease monetary conditions further and support an economy hit by the pandemic.
The United States saw a record number of new coronavirus infections last week, with a total number of cases close to 10 million.
Matt Sherwood of Australian fund manager Perpetual, however, said Biden’s win doesn’t necessarily justify an adjustment to his portfolio.
“In the end, we think the US economy is still quite fragile and growth is slowing down,” Sherwood said.
“Potentially, it could gravitate its portfolio more towards higher beta markets, such as emerging markets, and there is the possibility of better prospects in the energy space than would have been the case with a Democratic clean sweep.”
Oil prices surged on Monday as investors welcomed the prospect of a Biden win, ignoring concerns about lackluster demand amid mounting cases of global coronavirus. Brent crude added about $ 1 to $ 40.35.
Analysts said the outlook could get tougher from here as investors focus on Biden’s ability to expand fiscal stimulus and measures to reduce the spread of COVID-19.
US-based wealth manager Jim Wilding of Confluence Financial Partners in Pennsylvania added a word of caution considering the S&P 500 is not far from hitting all-time highs and equity valuations are generally at dizzying levels.
“While we remain positive about the medium-term outlook and believe that the divided government reduces the chances of a bearish scenario developing, we would refrain from unbridled enthusiasm at current levels,” he said.
Expectations that monetary policy in the United States will remain relaxed and world trade relations will improve have weakened the dollar in recent days. It posted its biggest weekly loss in more than seven months on Friday.
The dollar index was just above its lowest level in around 10 weeks, rising 0.1 percent, while trade and growth indicators such as the Australian dollar and the Chinese yuan remained in demand. The Australian dollar hit a seven-week high, up 0.4 percent, and the Chinese yuan hit a 28-month high.
The euro, which rose 1.9% last week, was unchanged. The British pound also remained flat as attention turned to the Brexit trade negotiations that came to a head with the EU summit on November 15.
(Information by Danilo Masoni in Milan and Swati Pandey in Sydney, Larry King edition)
