Business Irish

Friday 2 December 2016

Global markets rally on hopes of Trump tax cuts and stimulus

Rita Nazareth and Colm Kelpie

Published 11/11/2016 | 02:30

(L-R) Speaker of the House Paul Ryan (R-WI) shows Melania Trump, U.S. President-elect Donald Trump, and Vice-President Mike Pence the Mall from the Speaker's Balcony on Capitol Hill in Washington, U.S., November 10, 2016. REUTERS/Joshua Roberts
(L-R) Speaker of the House Paul Ryan (R-WI) shows Melania Trump, U.S. President-elect Donald Trump, and Vice-President Mike Pence the Mall from the Speaker's Balcony on Capitol Hill in Washington, U.S., November 10, 2016. REUTERS/Joshua Roberts
Speaker of the House Paul Ryan (R-WI) (L) shows Melania Trump (R) and U.S. President-elect Donald Trump (C) the Mall from the Speaker's Balcony on Capitol Hill in Washington, U.S., November 10, 2016. REUTERS/Joshua Roberts
(L-R) Speaker of the House Paul Ryan (R-WI) shows Melania Trump and U.S. President-elect Donald Trump the Mall from the Speaker's Balcony on Capitol Hill in Washington, U.S., November 10, 2016. REUTERS/Joshua Roberts TPX IMAGES OF THE DAY
Congressional pages react after U.S. President-elect Trump and Senate Majority Leader Mitch McConnell (R-KY) walked past them to meet at the U.S. Capitol in Washington, U.S. November 10, 2016. REUTERS/Jonathan Ernst
U.S. Speaker of the House Paul Ryan (R-WI) (L) shows Melania Trump and U.S. President-elect Donald Trump the Mall from the Speaker's Balcony on Capitol Hill in Washington, U.S., November 10, 2016. REUTERS/Joshua Roberts
U.S. President-elect Trump (2nd R), his wife Melania Trump (R), Vice President-elect Mike Pence (4th R) and Senate Majority Leader Mitch McConnell (R-KY) (3rd R) walk together to meet in McConnell's office at the U.S. Capitol in Washington, U.S. November 10, 2016. REUTERS/Jonathan Ernst
U.S. Vice President-elect Mike Pence (2nd L) smiles as he and President-elect Trump (2nd R) walk with Senate Majority Leader Mitch McConnell (R-KY) (R) to McConnell's office at the U.S. Capitol in Washington, U.S. November 10, 2016. REUTERS/Jonathan Ernst
President-elect Donald Trump, his wife Melania Trumpwalk to a meeting with Senate Majority Leader Mitch McConnell at the U.S. Capitol for a meeting November 10, 2016 in Washington, DC. (Photo by Mark Wilson/Getty Images)
US President-elect Donald Trump (C) walks with his wife Melania Trump, and Senate Majority Leader Mitch McConnell (R-KY) on Capitol Hill in Washington,DC on November 10, 2016. / AFP PHOTO / NICHOLAS KAMMNICHOLAS KAMM/AFP/Getty Images
US President-elect Donald Trump (2nd R) walks with his wife Melania Trump, and Senate Majority Leader Mitch McConnell (R-KY) on Capitol Hill in Washington,DC on November 10, 2016. / AFP PHOTO / NICHOLAS KAMMNICHOLAS KAMM/AFP/Getty Images
US President-elect Donald Trump walks onto a balcony at the US Capitol in Washington, DC, on November 10, 2016. / AFP PHOTO / NICHOLAS KAMMNICHOLAS KAMM/AFP/Getty Images
(From L to R) Melania Trump, US President-elect Donald Trump, House Speaker Paul Ryan and Vice President-elect Mike Pence meet at the US Capitol in Washington, DC, on November 10, 2016. / AFP PHOTO / NICHOLAS KAMMNICHOLAS KAMM/AFP/Getty Images
US President-elect Donald Trump (2nd R) walks with his wife Melania Trump, Vice President-elect Mike Pence (L) and Senate Majority Leader Mitch McConnell (R-KY) on Capitol Hill in Washington,DC on November 10, 2016. / AFP PHOTO / YURI GRIPASYURI GRIPAS/AFP/Getty Images
US President-elect Donald Trump (C) walks with his wife Melania Trump and Senate Majority Leader Mitch McConnell (R-KY) on Capitol Hill in Washington,DC on November 10, 2016. / AFP PHOTO / YURI GRIPASYURI GRIPAS/AFP/Getty Images
Melania Trump listens to her husband US President-elect Donald Trump speak to the press at the US Capitol in Washington, DC, on November 10, 2016. / AFP PHOTO / NICHOLAS KAMMNICHOLAS KAMM/AFP/Getty Images
Senate Majority Leader Mitch McConnell (L), walks with President-elect Donald Trump at the U.S. Capitol for a meeting November 10, 2016 in Washington, DC. Earlier in the day president-elect Trump met with U.S. President Barack Obama at the White House. (Photo by Mark Wilson/Getty Images)
Senate Majority Leader Mitch McConnell (2L), walks with President-elect Donald Trump, his wife Melania Trump, and Vice President-elect Mike Pence (L), at the U.S. Capitol for a meeting November 10, 2016 in Washington, DC. (Photo by Mark Wilson/Getty Images)
Senate Majority Leader Mitch McConnell (2L), walks with President-elect Donald Trump, his wife Melania Trump, and Vice President-elect Mike Pence (L), at the U.S. Capitol for a meeting November 10, 2016 in Washington, DC. (Photo by Mark Wilson/Getty Images)
US President-elect Donald Trump (C) walk with Vice President-elect Pence (L) and Senate Majority Leader Mitch McConnell(R) R-KY on Capitol Hill in Washington,DC on November 10, 2016. / AFP PHOTO / YURI GRIPASYURI GRIPAS/AFP/Getty Images
US President-elect Donald Trump (C) walks with his wife Melania Trump and Vice President-Elect Pence (2nd L) before a meeting with Senate Majority Leader Mitch McConnell(L) R-KY on Capitol Hill in Washington,DC on November 10, 2016. / AFP PHOTO / YURI GRIPASYURI GRIPAS/AFP/Getty Images
President Barack Obama and President-elect Donald Trump shake hands following their meeting in the Oval Office of the White House in Washington, Thursday, Nov. 10, 2016. (AP Photo/Pablo Martinez Monsivais)
President Barack Obama meets with President-elect Donald Trump in the Oval Office of the White House in Washington, Thursday, Nov. 10, 2016. (AP Photo/Pablo Martinez Monsivais)
President Barack Obama listens to President-elect Donald Trump speak to members of the media during their meeting in the Oval Office of the White House in Washington, Thursday, Nov. 10, 2016. (AP Photo/Pablo Martinez Monsivais)
President Barack Obama meets with President-elect Donald Trump in the Oval Office of the White House in Washington, Thursday, Nov. 10, 2016. (AP Photo/Pablo Martinez Monsivais)
U.S. President Barack Obama (R) meets with President-elect Donald Trump to discuss transition plans in the White House Oval Office in Washington, U.S., November 10, 2016. REUTERS/Kevin Lamarque - TPX IMAGES OF THE DAY
President Barack Obama meets with President-elect Donald Trump in the Oval Office of the White House in Washington, Thursday, Nov. 10, 2016. (AP Photo/Pablo Martinez Monsivais)
Journalists gather on the driveway in front of the West Wing in anticipation of the arrival of President-Elect Donald Trump at the White House. (Photo by Chip Somodevilla/Getty Images)

Donald Trump's unlikely rise to power is providing a shot in the arm for global financial markets - with stocks and metals rallying on optimism that his fiscal-stimulus plans will boost the economy - but bonds sank.

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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 surge in five years, gaining alongside lead, zinc, aluminium and the companies that produce them.

The dollar rose against most major peers, while government bonds extended their sell-off as Trump's win bolstered bets on faster inflation.

European shares - including the Iseq - ended slightly lower as expectations of fiscal stimulus from Mr Trump boosted government bond yields, prompting losses among utilities which more than outweighed stronger financial stocks.

The pan-European STOXX 600 ended down 0.3pc after rising to a two-week high earlier in the session.

Financial companies benefit from rising yields because that eases pressure on their margins, already hit by ultra-low interest rates, but falling bond prices make dividend-paying stocks like utilities less attractive.

"It's a favourable phenomenon for banks when they do not have yield curves with negative rates," said Pierre Mouton, a fund manager who oversees about $8.5bn (€7.8bn) 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 US.

"Since the US bond market guides the rest of the world, there is also a steepening effect on the yield curve in Europe."

Ireland's stock market bucked declines among European peers in the wake of Mr Trump's landmark election win, with CRH surging, which boosted the overall Iseq.

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Yesterday, the Iseq closed down 0.03pc.

David McNamara, analyst with Davy Stockbrokers, said the markets were taking a sanguine view of Mr Trump's victory.

"In a day of high volatility for markets, sharp declines early on were largely reversed by close on Wednesday as investors reacted positively to conciliatory remarks from Donald Trump and digested the possible impact of a potential stimulus from Trump's tax cutting and infrastructure plans.

"Nonetheless, Trump's ideology represents a significant break with the established political order.

"Most notably, the rejection of globalisation, free trade and man-made climate change jars with the policies of his predecessor. It remains to be seen whether the next administration will rein in the most radical proposals, which gained traction on the campaign trail, and what role the new Congress will play in this."

Meanwhile the dollar surged to the strongest level since March as Mr Trump's proposals are seen by economists as inflationary and leading to higher US interest rates.

The odds that the Federal Reserve will tighten policy in December have risen to 86pc from 76pc at the end of last week, based on futures.

The euro remained under pressure however.

"The euro continues on its sharp downward trajectory for a second straight day against the domestic currencies of our two largest (non-euro denominated) trading partners as global financial markets now begin to ask to ask the very pertinent question; are the seismic UK and US election results of recent months/days symptomatic of a global shift to populism?" said Justin Doyle, Senior Treasury Dealer at Investec.

(Additional reporting agencies)

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