Wednesday 19.15 GMT
What you need to know
- Global equities head for seventh successive advance
- S&P 500 up 1.6%; Nasdaq 1.9% higher
- Dollar and Treasury yields fall as Democrats take the House
- Focus turns to Federal Reserve meeting
- Oil prices hit by US inventories report
Global stocks continued their recovery following October’s steep sell-off while the dollar and Treasury yields fell as the outcome of yesterday’s US midterm elections broadly matched market expectations.
With the Democrats winning control of the House and the Republicans retaining control of the Senate, analysts focused on the impact of a divided government on US fiscal policy.
“The main risk scenario for us would have been a Republican victory in both the House and the Senate, which would likely have meant further fiscal stimulus and a prolonged ‘boom and bust’-style economic cycle,” said Bill Diviney at ABN Amro.
“With Democrats now controlling the House, we think it will be much harder for the president to push through further significant tax or spending changes.”
That helped push the dollar index to a two-week low, while longer-dated Treasury yields fell, flattening the curve.
The equity markets embraced the election results, with the S&P 500 extending its rise this week to nearly 2.8 per cent.
Healthcare stocks led the way in the US amid expectations that a gridlocked Congress would struggle to push through restrictive regulations on the sector, while tech stocks — which suffered badly in October — continued to rally.
The Cboe Global Markets Vix equity volatility index touched a three-week low.
European equity markets also had a strong session, “likely tied to the idea that a split Congress will deliver a sweetener in an upcoming trade deal”, said Peter Garnry, strategist at Saxo Bank.
The focus will now turn to the conclusion today of a two-day meeting of the US Federal Reserve. Daiwa Capital Markets highlighted that market participants would be watching for any signs “that recent financial market developments might cause the Fed to refrain from tightening policy at the subsequent December meeting”.
Oil prices continued to fall, with West Texas Intermediate touching a fresh eight-month low, as data showing a sharp rise in US crude inventories offset reports that Saudi Arabia and Russia were discussing whether to cut output next year.
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The FTSE All-World equities index was up 1.2 per cent, its seventh rise in a row, as US and European markets shrugged off a hesitant session in Asia.
By early afternoon in New York, the S&P 500 was up 1.6 per cent at 2,798, its highest level in almost three weeks. If sustained, the gain would be the benchmark’s best post-midterm performance since 1982.
The Dow Jones Industrial Average was 1.5 per cent stronger while the tech-heavy Nasdaq Composite was up 1.9 per cent.
The pan-European Stoxx 600 index rose 1.1 per cent as the Xetra Dax in Frankfurt gained 0.8 per cent and the London’s FTSE 100 finished 1.1 per cent higher.
Major Asia-Pacific equities benchmarks, which had been broadly higher, were mixed as the US results became clear. Hong Kong’s Hang Seng came off earlier gains to close down 0.1 per cent.
On China’s mainland, the CSI 300 index fell 0.7 per cent while Tokyo’s Topix closed 0.4 per cent weaker.
Forex and fixed income
The dollar index was down 0.3 per cent at 96.04 — after touching 95.68, the lowest since October 22 — as the euro rose 0.2 per cent to $1.1452, and the greenback slipped 0.1 per cent against the yen to ¥113.36.
Sterling maintained its upward path against the soft dollar, rising a further 0.3 per cent to a three-week peak of $1.3138, after reports suggested that a Brexit deal could be agreed by the end of the month. The euro was down 0.1 per cent against the pound at £0.8711.
US Treasuries pared early gains, although the yield on the 10-year note was still down 2 basis points at 3.20 per cent and that on the 30-year bond was 2bp lower at 3.40 per cent.
The latter had earlier dipped to 3.385 per cent — which helped deter investors from participating in a $19bn auction of 30-year paper.
A choppy session in the oil markets saw Brent rally all the way up to $73.55 a barrel before sliding back to $71.99, down 0.2 per cent on the day. That marked a 17 per cent retracement from its early October intraday high of $86.74.
US West Texas Intermediate was down 0.6 per cent at $61.87, after hitting $61.20.
Gold was marginally higher at $1,227 an ounce.
Additional reporting by Michael Hunter in London and Hudson Lockett in Hong Kong
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