LONDON (Reuters) – Bond yields soared and tech stocks and the dollar fell on Wednesday, with the prospect of more stimulus and stricter regulation if Democrats take control of the US Senate after the second round in Georgia. .
Raphael Warnock, a Baptist preacher at the historic church of Martin Luther King Jr., defeated incumbent Republican Kelly Loeffler to become the first black senator in the history of the deep southern state.
Jon Ossoff, a documentary filmmaker who at 33 would become the youngest member of the Senate, had a small advantage over incumbent David Perdue in the other race, with an unexpected end result until Wednesday at least.
Along with a narrow majority of Democrats in the House of Representatives, a “blue sweep” of Congress could usher in greater fiscal stimulus and pave the way for President-elect Joe Biden to push for broader corporate regulation and higher taxes.
Analysts generally assume that a Democratic-controlled Senate would be positive for global economic growth and therefore for most riskier assets, but negative for bonds and the dollar, assuming that the US budget and trade deficits would still increase more.
“The market is responding as you would expect in terms of the likely Democratic victory, the 10-year being the biggest highlight,” said Derek Halpenny, MUFG’s head of research for EMEA’s global markets, pointing to the inflationary impact of more stimuli .
Yield on 10-year US Treasury bonds rose above 1% for the first time since March, in the face of expectations for increased government lending under a 50-50 Senate split with Vice President-elect Kamala Harris as president the upper chamber, becoming the breaker tie.
German bond yields followed Treasury bonds, peaking in almost five weeks. [GVD/EUR]
DOLLAR DOLDRUMS
“A thorough cleansing of the Democrats is expected to raise US growth expectations, with very obvious consequences for bond yields,” said Paul O’Connor, head of multi-assets at Janus Henderson Investors.
“For the actions, the implications are more complicated, with the increase in forecasted GDP being somewhat offset by the prospect of higher taxes and greater regulatory intrusion.”
Nasdaq futures fell 2% and S&P 500 futures fell 1%, over fears that Democrats could seek stricter regulations for big tech companies. Big Tech’s shares, like Apple, fell in the premarket.
Other sectors, such as banks, oil and gas and health, may come under heavier scrutiny, while the infrastructure and alternative energy sectors may benefit.
World stocks rose 0.28%, towards recent records, and European stocks rose 0.87%.
Futures for the Russell 2000 index – which tracks small American businesses – rose 2.4% to a record high. Small-cap stocks are generally seen as the first to recover as the United States economy emerges from recession.
In Asia, Japan’s Nikkei fell 0.4%, while the Asia Pacific MSCI index, excluding Japan, erased previous gains for stable trade.
The euro rose to $ 1.2344, a level last seen in April 2018, while the yen reached a 102.57 per dollar high in 10 months. The dollar hit its biggest low in nearly six years against the Swiss franc.
Bitcoin was up more than 5%, to a record $ 35,879.
Oil prices have widened gains, reaching their highest level since the end of February, after Saudi Arabia announced a major voluntary cut in production, and as an industry report showed that US stocks fell last week. [O/R]
U.S. oil futures rose to $ 50.45 a barrel before slashing gains, rising 5% on Tuesday.
The internationally renowned Brent oil futures rose 0.49% to $ 53.86.
Additional reporting by Hideyuki Sano in Tokyo, Scott Murdoch in Hong Kong and Tom Westbrook in Singapore; Editing by Alex Richardson and Alison Williams