Stocks surge as hopes grow for U.S. stimulus

FILE PHOTO: Passersby wearing protective face masks walk past a screen displaying Nikkei share average and world stock indexes outside a brokerage, amid the coronavirus disease (COVID-19) outbreak, in Tokyo, Japan October 5, 2020. Picture taken with slow shutter speed. REUTERS/Issei Kato

October 9, 2020

By Tom Arnold and Hideyuki Sano

LONDON/TOKYO (Reuters) – World shares pushed on from one-month highs, with Asian stocks closing in on two-and-a-half-year highs, as expectations grew of a Democratic victory in U.S. elections next month, reviving hopes for more U.S. stimulus.

A widening lead for Democratic presidential candidate Joe Biden and the possibility his party will win both the Senate and the White House in the Nov. 3 vote has raised the prospect of a big economic stimulus.

The possibility of stimulus is also helping to counter investor wariness about a Democrat pledge to hike corporate tax rates.

The pan-European STOXX 600 index <.STOXX> rose 0.3%, set for its second straight week of gains. Wall Street futures <ESc1> were up 0.4%.

MSCI’s broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> rose 0.3%, inching closer to its Aug. 31 peak, which was its highest level since March 2018. China’s CSI300 index <.CSI300> gained 2% after the Golden Week holidays.

Japan’s Nikkei <.N225> dipped 0.1% after reaching a seven-and-a-half-month high.

The MSCI world equity index <.MIWD00000PUS>, which tracks shares in 49 countries, was up 0.1% at a more than one month high.

On Wall Street on Thursday, the S&P 500 <.SPX> gained 0.80% and the Nasdaq Composite <.IXIC> added 0.5%.

In a sign markets are pricing in a Biden victory, clean energy-related shares have outperformed in recent weeks. The iShares Global Clean Energy ETF <ICLN.O> has gained 14% so far this month, compared with 4% gains in the S&P 500 energy index.

“Biden seems to have a clear lead following the TV debate and a coronavirus cluster in the White House, which has raised questions about Trump’s crisis management capabilities,” said Mutsumi Kagawa, chief global strategist at Rakuten Securities.

A new Reuters/Ipsos poll found Americans are losing confidence in U.S. President Donald Trump’s handling of the coronavirus pandemic. His net approval on the issue that has dropped to a record low.

The November contract of Volatility Index futures <VXX0> dropped to 30.25, its lowest level in three weeks, another sign of reduced worries about a contested election.

“The rise in U.S. yields, particularly at the long end, suggests increased expectations of a blue wave in the election,” said Koichi Fujishiro, economist at Dai-ichi Life Research Institute.

The 10-year U.S. Treasuries yield has risen 8.5 basis points so far this week, to 0.779% <US10YT=RR>. It hit a four-month high of 0.797% on Wednesday, but has slipped in part due to weak economic data.

The 10-year German bond yield was unchanged at -0.525% <DE10YT=RR>. Other core yields were a touch lower <FR10YT=RR>, <BE10YT=RR>.

Data on Thursday showed the number of jobless claims in the U.S. came in 20,000 higher than economists expected at 840,000, showing unemployment in the world’s largest economy remains historically high and a recovery in the labour market is losing momentum.

Additionally, the World Health Organization reported a record one-day increase in global coronavirus cases on Thursday, led by a surge of infections in Europe.

Graphic: Stocks versus COVID –

In the currency market, the dollar weakened against most other currencies, easing 0.1% against a basket of currencies <=USD> at 93.47 and down 0.4% for the week, the second week of declines in a row. It reached a two-month high at 94.75 in late September.

The Chinese yuan was the biggest beneficiary of the rising hopes of a Biden win, posting its biggest daily rise in more than four years after the holidays.

The yuan <CNY=CFXS> was last up 1.2% at 6.7112 per dollar in onshore trade and up half a percent to 6.7024 per dollar offshore <CNH=D3>.

The euro <EUR=EBS> rose 0.1% to $1.1776, while sterling <GBP=D3> added 0.2% to $1.2961 but fell against the euro after worse-than-expected UK gross domestic product data.

Oil prices edged up, propelled by supply outages caused by a storm in the Gulf of Mexico and a strike of offshore workers in Norway. Both benchmark contracts were on course for their biggest weekly gains since early June. [O/R]

Brent <LCOc1> was up 16 cents at $43.50 a barrel. U.S. West Texas Intermediate crude <CLc1> rose 14 cents to $41.33.

A weaker dollar boosted gold <XAU=>, which gained 1.1% to $1,914.28 per ounce.

(Additional reporting by Imani Moise in New York; editing by Larry King)

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