(Bloomberg) – Donald Trump’s unlikely rise to power is providing a shot in the arm for global financial markets, with stocks and commodities rallying on optimism that his fiscal-stimulus plans will boost the global economy.
The MSCI All Country World Index wiped out its monthly drop and the Dow Jones Industrial Average climbed to a record high. Copper was set for its biggest back-to-back jump in five years, gaining alongside lead, zinc, aluminum and the companies that produce them. The dollar rose against most major peers, while government bonds extended their selloff as Trump’s win bolstered bets on faster inflation.
Traders are betting Trump and a Republican-controlled Congress will lower taxes, ease corporate regulation and ramp up spending to spur economic growth. He pledged to at least double the $275 billion five-year building plans of rival Hillary Clinton, while saying infrastructure will become “second to none” with millions working on projects. That also means commodities used to build everything from airports to bridges would benefit under his presidency, according to Goldman Sachs Group Inc.
“It’s a relief rally of the certainty of the outcome of the election and after the conciliatory tone that Trump took,” said Nick Skiming, a fund manager at Jersey, Channel Islands-based Ashburton Ltd. His firm oversees $10 billion. “We know from Trump’s policies that he wants to reduce taxes and embark on fiscal spending and if he gets those approved, that will be expansionary for the U.S. economy in the short term.”
MSCI’s global gauge advanced 0.7 percent at 9:56 a.m. in New York, after closing little changed on Wednesday.
The Dow Average rose 139.70 points, taking it above its Aug. 15 record. The S&P 500 Index advanced 0.7 percent to 2,177.44. Drugmakers and banks climbed on bets the Republican administration will mean less regulatory oversight in those sectors than a win for Clinton.
Perrigo Co. rose after saying it will review options including the sale of rights to the royalty stream from a multiple sclerosis drug. Shake Shack Inc. jumped after the burger chain raised its annual sales forecast. MetLife Inc. gained after announcing a plan to buy back $3 billion in shares. Kohl’s Corp. rallied after posting better-than-estimated earnings and boosting its stock repurchase program.
The Stoxx Europe 600 Index extended a four-day rally, led by UBS Group AG and Credit Suisse Group AG, which get more than 35 percent of their revenues from the Americas.
Lenders that until recently were the year’s worst-performing sector in the equity benchmark are bouncing back as bond yields are rebounding from their summer lows, easing concerns over profitability.
“It’s a favorable phenomenon for banks when they do not have yield curves with negative rates,” said Pierre Mouton, a fund manager who oversees about $8.5 billion at Notz, Stucki & Cie. in Geneva, referring to the difference in yields between short- and long-dated bonds, which lenders profit from. “Public spending and measures more or less protectionist will get inflation going. So the rates will increase in the U.S. Since the U.S. bond market guides the rest of the world, there is also a steepening effect on the yield curve in Europe.”
The clearest message delivered by Donald Trump in his election victory speech was a focus on greater infrastructure spending in the U.S. (Photo: AP)
All industrial metals advanced on the London Metal Exchange, with zinc adding 1.8 percent, nickel up 0.3 percent and copper advancing 3.4 percent by 2:28 p.m. London time. The LME index on Wednesday rose 2.1 percent to its highest level since June last year.
“The clearest message delivered by Donald Trump in his election victory speech was a focus on greater infrastructure spending in the U.S.,” Goldman’s analysts including Damien Courvalin and Jeffrey Currie said in a Nov. 9 report. “Without specific details it is hard to quantify the impact on commodity demand, however such policies would support steel, iron ore, zinc, nickel, diesel and cement.”
Oil fell as the market’s focus shifted from Trump’s shock U.S. presidential election victory to questions about OPEC’s ability to rebalance crude supply and demand.
West Texas Intermediate for December delivery lost 44 cents to $44.83 a barrel on the New York Mercantile Exchange after earlier rising 0.8 percent. Brent for January settlement fell 20 cents, or 0.4 percent, to $46.16 a barrel on the London-based ICE Futures Europe exchange, trading at a 60-cent premium to January WTI.
A $15 billion Treasury 30-year bond auction Thursday will offer fresh insight into global sentiment toward U.S. debt under the pending stewardship of President-elect Donald Trump one day after traders greeted his election by inflicting the biggest selloff in five years.
The yield difference between 5- and 30-year securities widened Wednesday to the most since February, while a sale of 10-year notes drew the weakest demand since 2009, with interest from international buyers particularly tame. Indirect bidders, a category that includes foreign central banks, took on just over 50 percent, compared with an average of around 65 percent for the previous 10 sales.
“They’re basically selling Treasuries because they really don’t know what Donald Trump has in store for them,” di Galoma said. “Most of the activity is coming from overseas. They’re not sure what he’s all about.”
Benchmark 10-year note yields rose three basis points, or 0.03 percentage point, to 2.09 percent as of 8:39 a.m. in New York, according to Bloomberg Bond Trader data. The 2 percent security due in November 2026 fell 10/32, or $3.13 per $1,000 face amount, to 99 7/32.
The yield on 30-year bonds increased three basis points to 2.87 percent, after jumping 23 basis points on Wednesday, the most since October 2011.
The dollar surged to the strongest level since March as Trump’s proposals are seen by economists as inflationary and leading to higher U.S. interest rates. (Photo: Thinkstock)
The dollar surged to the strongest level since March as Trump’s proposals are seen by economists as inflationary and leading to higher U.S. interest rates. The odds that the Federal Reserve will tighten policy in December have risen to 86 percent from 76 percent at the end of last week, based on futures.
“A Trump presidency is not necessarily negative in the short term,” said Sonja Marten, head of currency strategy at DZ Bank AG in Frankfurt. “Especially given that he’s probably going to expand fiscal spending next year, which might give a positive impulse to the economy” and in turn means the Federal Reserve can raise interest rates.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, advanced 0.8 percent. The dollar rose 1.2 percent to 106.91 yen, touching the highest since July, and advanced 0.2 percent to $1.0889 per euro.
Mexico’s peso tumbled for a second day, sinking 3 percent to 20.4503 per dollar. While Trump’s conciliatory tone in his day-after speech eased the worst of investors concerns, there’s still plenty to fret about. Chief among them is whether President Trump will be as harsh as Candidate Trump when it comes to renegotiating free-trade deals, cracking down on illegal immigration and building a wall along the U.S.’s border with Mexico.