LONDON (Reuters) – Bond yields soared and the dollar fell on Wednesday with the prospect of further stimulus if Democrats took control of the US Senate after the second round of Georgia elections, while oil hit a high in 11 months after Saudi Arabia agreed to reduce production more than expected.
Democratic challenger Raphael Warnock defeated Republican candidate Kelly Loeffler in one of two Senate contests in the state, projected by television networks and Edison Research. Democratic challenger Jon Ossoff holds a small advantage over Republican David Perdue in the other, with 98% of the votes counted, according to Edison. on here
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.
“A Democratic-led government is expected to add more stimulus, essentially spend more, to help mitigate the virus crisis,” said Paul Sandhu, head of quantitative multi-asset solutions, APAC, at BNP Paribas Asset Management in Hong Kong. “It means that there will be a weaker dollar.”
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.
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.
For a graph on the 10-year US Treasury yield above 1%:
“History tells us that it is much easier to do things when one party controls everything, as Democrats and Republicans have had a difficult time cooperating for at least 30 years,” analysts at Danske said in a note.
German bond yields followed Treasury bonds, peaking in almost five weeks. [GVD/EUR]
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.
World stocks rose 0.1%, returning to recent records, and European stocks rose 0.08%.
But US S&P 500 futures fell 0.7%, while Nasdaq futures fell 2.1%, due to fears that Democrats may seek stricter regulations for major technology companies.
Other sectors, such as banks, oil and gas and health, may come under heavier scrutiny, while the infrastructure and alternative energy sectors may benefit.
OIL CLIMB
Oil prices reached their highest level since February 2020, after Saudi Arabia agreed to reduce production more than expected at a meeting with allied producers, while industry figures showed that US oil stocks fell last week. [O/R]
U.S. oil futures rose to $ 50.24 a barrel before reducing gains, up 4.9% on Tuesday.
Brent’s international benchmark oil futures rose 0.54% to $ 53.89.
In Asia, Japan’s Nikkei fell 0.4%, while the Asia Pacific MSCI index, excluding Japan, erased previous gains for stable trade.
Shanghai shares have increased gains, with the CSI300 index rising 0.7% and reaching its best levels since 2008, ignoring the chaotic treatment of the New York Stock Exchange on how it will treat Chinese companies to comply with the sanctions set by the Trump administration .
The exchange took a second sudden turn when it said it was reconsidering its plan to allow three Chinese telecommunications giants to remain listed.
Additional reporting by Hideyuki Sano in Tokyo, Scott Murdoch in Hong Kong and Tom Westbrook in Singapore; Editing by Sam Holmes, Kenneth Maxwell and Alex Richardson