Reuters
- U.S. stock futures soared despite scenes of unprecedented violence in Washington, DC the day before, where supporters of Donald Trump stormed the Capitol.
- Investors chose to look at the likely fiscal stimulus under Joe Biden and a Democratic Congress, after the party won two runoff elections in Georgia.
- Bond yields increased with falling prices, with analysts saying the future was bright for cyclical stocks that can gain from stimulus, growth and inflation.
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U.S. stock futures soared on Thursday, as investors looked beyond the chaotic scenes on Capitol Hill on Wednesday towards a Joe Biden administration that will have a more free hand to boost fiscal stimulus after Democrats won two major disputes in Georgia.
Yields on the 10-year U.S. Treasury bills rose above 1%, with investors changing their safe haven securities, despite supporters of President Donald Trump breaking into Congress on Wednesday in an unprecedented spectacle during which a woman was shot dead.
The market’s reaction to the violence has been quieted, with the S&P 500 and Dow Jones closing higher, but the Nasdaq slightly below.
All three major US indices were expected to rise slightly on the opening bell on Thursday. S&P 500 futures were up 0.55%, Nasdaq 100 futures were up 0.71% and Dow Jones futures were up 0.36%.
The dollar index saw small gains of around 0.16%, but has still traded around its lowest index since early 2018 in relation to a basket of major currencies.
The VIX index – a market-based indicator of investor anxiety – rose more than 10% on Wednesday to about 26%, thanks to runoff runs in Georgia and disturbances in Washington, DC. The index fell overnight and fell 6.34% to 23.48 mid-morning in European trade.
Analysts said the driving force behind market movements was not protests, but Democratic victories in Georgia, where Raphael Warnock and Jon Ossoff ousted Republicans on Wednesday. The victories will hand the Democrats control of the Senate through the tie-breaking vote of Vice President-elect Kamala Harris.
“The Senate results mean that the so-called ‘blue wave’ scenario has finally emerged, albeit through a tortuous journey, resulting in a small Democratic majority in both chambers of Congress,” said Jim Reid of Deutsche Bank in a note. .
“The main implication is the prospect of a substantially larger US stimulus package, since the president-elect [Joe] Biden takes over and gives more support to the reflection trade. “
Read more Morgan Stanley says more than 20% could be wiped out of Nasdaq 100 ratings if U.S. Treasury yields normalized
Yields on U.S. government bonds increased as investors predicted that further stimulus would lead to stronger growth and inflation. Traders also anticipated that stronger fiscal support would mean that the Federal Reserve would need to add less monetary stimulus to bond markets.
The 10-year reference Treasury yield, which moves inversely in price, rose 1.5 basis points to 1.058%, having recently surpassed the 1% limit for the first time since the coronavirus pandemic began last year.
Kristoffer Kjær Lomholt, chief analyst at Danske Bank, said that the Democratic victories were “positive for the reflection talks”. In other words, bets on cyclical stocks, such as financial and industrial, which underperformed during the coronavirus crisis and would be driven by growth and inflation.
“This increases the chance of further fiscal easing in the short term, but it probably also limits how much Biden can raise taxes in the future. This has been the catalyst for US Treasury yields in 10 years moving above 1% for the first time. since March. “
Asian stocks rose overnight thanks to what Oanda analyst Jeffrey Halley called a “race for the cyclicals”. China’s CSI 300 rose 1.77%, Japan’s Nikkeicl rose 1.6% and Australia’s ASX 200 rose 1.59%.
European stocks opened slightly higher on Thursday, with investors assessing their own domestic problems, namely the increase in coronavirus cases and new blockages.
The Stoxx 600 across the continent rose 0.1%, but the UK’s FTSE 100 fell into the red after gaining almost 7% in the first three sessions of the year.
The fall in US Treasury yields had a mixed effect on European yields. The UK’s 10-year yield rose 1.5 basis points to 0.261%, but the German 10-year yield fell 0.6 basis points to -0.552%.
Halley said, “Markets will continue to focus on the potential [US] Democratic agenda, which should be largely positive for cyclical sectors. “
Analysts at UBS said in a note: “The volatility in the outlook for a unified government will be short-lived and will soon be overshadowed by investor expectations of an end to the pandemic in the coming months.
“We maintain a positive long-term outlook for US equities in general and cyclical and medium and low capitalization equities in particular, as the economic recovery accelerates in the second quarter.”
Read more Wall Street experts are calling Georgia’s runoff results “the first 2021 surprise”. See how 4 of them recommend positioning your portfolio for what might happen next.