Global markets rally on hopes of Trump tax cuts and stimulus
Published 11/11/2016 | 02:30
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.
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.
- ‘Flood of companies’ to leave Ireland due to US tax cuts
- Colm Kelpie: US firms not going home in the morning - but future is under threat
- Taoiseach’s White House visit a chance to build new relations
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)