SYDNEY (Reuters) – Asian shares hit a nearly three-year high on Thursday and bonds extended a dizzying rally as investors bet on the prospect of a U.S. policy deadlock that will benefit several industries. At the same time, limit government borrowing.
The danger of a long, disputed election remains, though the tally of votes is taking place in an orderly manner with Democrat challenger Joe Biden far above the critical states.
Randal Jenneke, a portfolio manager at T. Rowe Price, said: “While the official outcome of the US election is still unknown, Biden̵7;s win rate and Republicans maintain control. Senate control is increasingly becoming the most likely outcome “.
“This outcome is often seen as a ‘mixed gold scenario’ for financial markets – there is no radical policy change and the Fed provides ample liquidity to try to support the economy and financial markets. upon request. “
A divided government will limit fiscal stimulus and any ‘radical policy changes’ that will drive growth stocks like healthcare, IT, and consumption, Jenneke added. .
MSCI’s widest Asia-Pacific stock index outside Japan jumped 2% to its highest level since February 2018. Japan’s Nikkei climbed 1.7% to its highest level in more than nine months. and by South Korea by 2.4%.
Chinese blue-chips rose 1.3 percent, with the help of the White House in Biden likely to ease tariffs during the trade war.
E-Mini futures for the S&P 500 rose 0.6 percent and NASDAQ futures 1.4 percent. EUROSTOXX 50 plus 0.3% and FTSE 0.25%.
Both Presidents Donald Trump and Biden have links to 270 Electoral College votes as the states check mail ballots. Biden remained optimistic on the victory while incumbent Republicans filed lawsuits and demanded recount.
(For the latest election results and more detailed information, click: here)
Betting sites leaned towards Biden as the results dwindled, previously favoring Trump heavily.
However, Democrats’ prospects of winning the Senate are also fuzzy, pointing to a stalemate should Biden take over the White House.
“A Biden victory without the full Senate support means less regulatory risks and higher corporate / personal taxes,” the analysts at Nomura wrote in a note.
“The asset market response over the past 24 hours confirms this view, with US 10-year yields plummeting and US technology / WFH / structural growth stocks outperforming little prospects. more economic aid. ”
BIG WINS BEFORE
The bond market assumes that a divided government will significantly reduce its debt-spending opportunity for stimulus and infrastructure over the next year, and therefore the supply of bonds will be less.
That saw 10-year Treasury yields drop back to 0.74%, after hitting a 5-month high of 0.93% at a period on Wednesday.
The 11 basis point drop overnight was the biggest move in a day since the COVID-19 market panicked in March.
The opportunity to reduce US fiscal stimulus will put pressure on central banks globally to pump liquidity, just as the Federal Reserve and Bank of England hold policy meetings.
Chris Beauchamp, head of market analysis at IG, said: “Both can be interesting when central banks need to do more.
“The Fed in particular will have to take over its QE role again with a tired sigh, to be able to provide yet another bridge to the future when, hopefully, a government stimulus package will. agreed. “
The new focus on Fed easing has held back the dollar, after a night of devaluation. The dollar index was last at 93,362, a lot closer to Wednesday’s low of 93,070 from a high of 94,308.
Likewise, the dollar stabilized back 104.38 yen briefly up to 105.32 overnight. The euro holds at $ 1.1734, away from the low of $ 1,1602.
Sterling has its own problems.
The Bank of England increased its stimulus to buy already huge bonds on Thursday by adding £ 150 billion ($ 194.61 billion) to a total target of 895 billion as it seeks to support the struggling economy of UK before the effects of the second coronavirus lockout.
The Telegraph previously reported that BoE is considering switching to negative interest rates.
Sterling was down 0.3% at $ 1.2941, from an overnight peak of $ 1,3139.
All the talk about easing the policy has put gold prices on the floor, making this metal firmer at $ 1,909.1 / ounce.
Oil prices had some profit taking. They parachuted overnight on speculation that a deadlocked US government would not be able to pass important environmental laws in favor of other forms of energy. [O/R]
US crude fell 878 cents to $ 38.37 a barrel, then rose 4 percent on Wednesday, while Brent futures fell 80 cents to $ 40.43.
Graphics – Asian stock markets: here
Graphics – Asia-Pacific valuation: here
Additional reporting by Koh Gui Qing and Swati Pandey; Edited by Sam Holmes & Shri Navaratnam