TOKYO (Reuters) – Global stock prices fell and bond yields soared on Wednesday, with investors preparing for the prospect that Democrats could win both seats at stake in the second round of the US Senate in Georgia , giving them control of the Chamber.
Along with its narrow majority 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 drive greater corporate regulation and higher taxes.
Broadcaster NBC called one of the contests for Democrat Raphael Warnock, toppling current Kelly Loeffler, while challenger Democrat Jon Ossoff had a small lead over Republican David Perdue in the other, with 98% of the votes counted. on here
“With Biden proposing to reverse President Donald Trump’s tax cut, raise the minimum wage and strengthen oversight in various sectors, some may argue that his agenda is not particularly market-friendly,” said Vasu Menon, chief investment strategy officer of the OCBC Bank in Singapore.
Futures for the S&P 500 fell 0.8%, while Nasdaq futures fell 1.6% due to Democrats’ fears of seeking stricter regulations for big tech 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.
Japan’s Nikkei fell 0.4%, while the Asia-Pacific MSCI index, excluding Japan, erased previous gains for stable trade.
European stocks are on track to rise in a recovery with the overnight Wall Street stock rebound, with European stock futures trading 0.5 to 0.7% above.
Yield on 10-year US Treasury bonds rose above 1% for the first time since March, due to expectations of increased government lending under the Senate, where Vice President-elect Kamala Harris would become the tiebreaker.
“The reaction of the US bonds reflects the growing caution about the Democrats’ victory in the second round,” said Shogo Maekawa, global market strategist at JPMorgan Asset Management.
“It is also natural for stocks to fall in the short term, as there may be an increase in taxes and stricter regulations on big technologies and so on. But, on the other hand, there must be positive factors as well, such as more stimulus and more spending on infrastructure ”.
Vishnu Varathan, an economist at Mizuho Bank in Singapore, hopes that the declines in stocks will be short-lived.
“My suspicion is that the immediate reaction would be a slightly stronger dollar and a slight setback in stocks, because people are still evaluating things,” he said. “I don’t think this is a trade that markets will continue to pursue and extend.”
Shanghai shares widened gains on Wednesday, 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 sanctions established 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.
Oil prices have remained steady, maintaining their nearly 5% gains made on Tuesday after Saudi Arabia offered to make voluntary cuts in its oil production.
Tensions following the seizure of a South Korean vessel by an OPEC member, Iran, have also left nerves on edge, adding further support to the market.
Tehran denied on Tuesday that it was using the ship and its crew as hostages, the day after seizing the tanker in the Gulf, while pressing for a Seoul demand to release $ 7 billion in funds frozen under US sanctions.
U.S. oil futures were up 0.3% to $ 50.09 a barrel after rising 4.9% on Tuesday.
Brent’s international benchmark oil futures rose 0.6% to $ 53.94.
In currencies, the US dollar hit a new low before recovering with the prospect of a “blue sweep” in Georgia.
The euro rose to $ 1.2328, an increase last seen in April 2018, while the yen reached a 102.595-dollar high in 10 months.
Bitcoin rose more than 5% to reach a record high of $ 35,879.
Additional reporting by Scott Murdoch in Hong Kong and Tom Westbrook in Singapore; Editing by Sam Holmes and Kenneth Maxwell