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SYDNEY: Asian stock markets strengthened on Thursday, while bonds held big gains as investors waited for a clear outcome of the US election, with the possibility of a policy stale seemingly welcomed by Wall Street overnight.
MSCI’s broader index of Asia-Pacific stocks outside Japan added 0.5% to its highest level since March 2018. Japan’s Nikkei rose 0.9% to a nine-month high and Korea from the South rose 1.5%.
E-Mini futures for the S&P 500 firmed 0.3%, adding to strong gains overnight.
Both President Donald Trump and Democratic challenger Joe Biden have paths for 270 votes in the electoral college as states count mail-in ballots. Biden had a small advantage in Wisconsin while the Trump campaign filed a lawsuit to try to stop the vote counting in that state.
(For the latest election results and more coverage, click: https://www.reuters.com/world/us-election2020)
Gambling sites leaned towards Biden as the results came in, having favored Trump long before.
However, the prospects of Democrats taking over the Senate also dimmed, pointing to a stalemate if Biden were to take the White House.
“The stock markets have now decided that they like the perspective of a president ‘doing nothing’, without the control of both houses of Congress, where history is on his side,” said Ray Attrill, director of foreign exchange strategy of the National Australia Bank.
“This opinion, however, will continue to be contingent on some sort of COVID-19 related tax package being agreed, ideally sooner rather than later.”
Tech and healthcare stocks had carried the load up overnight on bets that a divided government would reduce the chances of major reforms or corporate tax increases.
That helped the Dow end up 1.34% on Wednesday, while the S&P 500 gained 2.20% and the Nasdaq 3.85%.
Bond markets assumed that a divided government would greatly reduce the possibility of debt-financed spending on stimulus and infrastructure next year, and thus a lower supply of bonds.
That sent 10-year Treasury yields slumped again to 0.75 percent, after hitting a five-month high of 0.93 percent at one stage on Wednesday.
The overnight drop of 11 basis points was the biggest single-day move since the March COVID-19 market panic.
The reduced possibility of massive fiscal stimulus from the United States will also increase pressure on central banks around the world to inject more liquidity, just as the Federal Reserve and the Bank of England hold policy meetings.
“Both could be interesting given the need for central banks to do more,” said Chris Beauchamp, IG’s chief market analyst.
“The Fed in particular will have to take on its QE role again with a weary sigh, perhaps to provide another bridge into the future when, hopefully, a government stimulus package has been agreed.”
A renewed focus on the Fed’s easing could weigh on the dollar once again, after a wild ride overnight. The dollar index last stood at 93,403, much closer to Wednesday’s low of 93,070 than the high of 94,308.
Also, the dollar returned to 104.32 yen, having been briefly up to 105.32 overnight. The euro rose to $ 1.1733, far from a low of $ 1.1602.
Sterling had its own problems after the Telegraph newspaper reported that the Bank of England was considering changing negative interest rates.
That left the pound unchanged at $ 1.2966, compared with an overnight peak of $ 1.3139.
All the talk about easing the policy put a floor on gold prices, leaving the metal on a firmer pitch at $ 1,904 an ounce.
Oil prices kept most of their gains overnight on bets that a stagnant U.S. government could not pass major environmental legislation favoring other forms of energy.
US crude fell 31 cents to $ 38.84 a barrel, but that followed a 4% jump on Wednesday, while Brent crude futures last settled at $ 41.20.
(Additional information from Koh Gui Qing; Editing by Sam Holmes)
