(Reuters)
Biden is now favoured to oust Donald Trump after victories in Michigan and Wisconsin, but Democrats are unlikely to win the Senate. That led investors to wager on a policy gridlock that would prevent greater regulation.
With the Bank of England adding 150 billion pounds ($195.20 billion) to its bond-buying programme as Europe’s markets opened, the FTSEurofirst was up 0.8% and Italy’s five-year bond yields fell below zero. [EUR/GVD]
Asian stocks climbed 2% overnight to reach their highest since February 2018.
Japan’s Nikkei rose 1.7% to a more than nine-month top, South Korea gained 2.4%, and Chinese blue chips added 1.3% on hopes a Biden White House would ease up on tariffs.
A split U.S. Congress, while potentially limiting fiscal stimulus, would have some advantages, said Michele Pedroni, a fund manager at Decalia Asset Management in Geneva.
“The big bad wolf of regulation and taxes is further away from the door and many, who have de-risked into the event, will be forced to re-risk,” she said.
E-Mini futures for the S&P 500 rose 1.6% and NASDAQ futures 2% after both real-time markets had surged on Wednesday as the election results unfolded.
Amazon , Facebook and Google have all soared 6% to 8%.
Both Trump and Biden have paths to 270 Electoral College votes as states tallied mail-in ballots. Biden remained optimistic on winning while Trump filed lawsuits and demanded recounts.
The divided Congress that looked likely to emerge was “often seen as the ‘goldilocks scenario’ for financial markets — no radical policy changes and the Fed providing ample liquidity to try to support the economy and financial markets when required,” said Randal Jenneke, a portfolio manager at T. Rowe Price.
BONDS WIN BIG
Bond markets assumed a divided government would greatly reduce the chance of debt-funded spending on stimulus and infrastructure next year, and thus less bond supply.
That saw 10-year Treasury yields fall to 0.74% , having touched a five-month top of 0.93% at one stage on Wednesday. The overnight drop of 11 basis points was the largest single-day move since March’s COVID-19 panic.
The diminished chance of U.S. fiscal stimulus will put pressure on central banks globally to inject liquidity.
The Bank of England added 150 billion pounds to a total target of 895 billion as it sought to cushion Britain’s struggling economy against a second coronavirus lockdown.
In addition, the Federal Reserve will probably be called on, too, said Chris Beauchamp, chief market analyst at IG.
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“The Fed in particular will have to take up its QE role again with a weary sigh, in order perhaps to provide yet another bridge to the future when, hopefully, a government stimulus package will have been agreed,” Beauchamp said.
The prospect restrained the dollar, after a wild ride overnight. The dollar index was last at 93.362 , nearer Wednesday’s low of 93.070 than the top of 94.308.
The dollar also settled back to 104.38 yen after rising as high as 105.32 overnight. The euro held at $1.1734 , up from a low of $1.1602.
Sterling recovered after bumpy ride on Wednesday amid troubles of its own. Little sign of a breakthrough on Brexit has appeared, and the Telegraph newspaper had earlier reported the BoE was considering a move into negative interest rates.
The pound gained to $1.3023 , still down from an overnight peak of $1.3139.
All the talk of policy easing put a floor under gold prices, leaving the metal up at $1,909.1 an ounce .
Oil prices ran into some profit-taking. They had jumped overnight on speculation a deadlocked U.S. government would be unable to pass major environmental legislation that favoured other forms of energy. [O/R]
U.S. crude slipped to $38.37 a barrel, though that followed a rise of 4% on Wednesday. Brent crude futures fell 80 cents to $40.43.
($1 = 0.7685 pounds)
Additional reporting by Swati Pandey in Sydney
