Global equities jump, bonds dip, on hopes of vaccine-led recovery

Stock markets rose and safe havens such as US Treasury bonds dipped Tuesday as better than expected factory data and signs that the first coronavirus vaccinations could be administered by the end of the year helped prolong a worldwide rally in risk assets despite an acceleration of the pandemic.

Bets on more easing from the US Federal Reserve to help the economy through the winter weighed on the dollar as riskier currencies rose, while crude prices struggled to join the bounce after oil-producing countries delayed a decision on output cuts.

Pfizer on Tuesday said it had asked for emergency EU authorisation of its vaccine, taking it closer to launch following a similar move in the United States last month.

Moderna applied for US authorisation on Monday after full results from a late-stage study showed it was 94.1 per cent effective with no serious safety concerns.

“We believe the rally can continue, with the current pipeline of expected vaccine rollouts, in line with our central scenario of widespread availability in the second quarter of 2021,” said Mark Haefele, chief investment officer at UBS Global Wealth Management in Zurich.

MSCI’s gauge of stocks across the globe gained 0.98 per cent following broad gains in Europe and Asia, with Japan’s Nikkei closing near a 29-1/2-year high.

China’s blue-chip CSI300 index rose 2.2 per cent after a business survey showed activity in China’s factory sector accelerated at the fastest pace in a decade in November. In the UK, factories recorded their fastest growth in almost three years last month, a survey showed Tuesday.

In morning trading on Wall Street, the Dow Jones Industrial Average rose 308.08 points, or 1.04 per cent, to 29,946.72, the S&P 500 gained 36.33 points, or 1.00 per cent, to 3,657.96 and the Nasdaq Composite added 91.54 points, or 0.75 per cent, to 12,290.28.

Breakthroughs in vaccine developments from top drugmakers Pfizer, Moderna and AstraZeneca in November along with a market-friendly outcome of the US presidential election helped the MSCI world stock index score its best month on record in November, up 12 per cent to new all-time peaks.

Coronavirus cases have touched multi-month highs in South Korea, Hong Kong and Europe over the last week, while the United States posted a record 4.2 million new cases in November.

“What we are seeing today is that upward trend reasserting itself, given the positive news on the vaccine front, China’s growth picking up, and the tremendous faith in the ability of central banks to keep the markets afloat,” said Stephen Miller, market strategist for GSFM Funds Management.

In foreign exchange markets, the dollar was under pressure after closing out on Monday its worst month since July with a little bounce, and as investors reckon on even more US monetary easing.

In a speech released late on Monday, Fed chair Jerome Powell said a slowing recovery and a surging pandemic meant the US was entering a “challenging” few months, with the potential deployment of a vaccine still facing hurdles.

Bitcoin was volatile, last down 6 per cent after hitting a record high earlier in the day.

Benchmark US 10-year notes last fell 12/32 in price to yield 0.8816 per cent, from 0.842 per cent late on Monday, as the US Congress began a two-week sprint to secure funding and avoid a possible shutdown amid the coronavirus pandemic.

Oil prices were volatile after leading producers delayed talks on 2021 output policy, while the coronavirus pandemic continued to sap fuel demand.

US crude fell 0.64 per cent to $45.05 per barrel and Brent was at $47.72, down 0.33 per cent on the day.

The dollar fell on Tuesday to its lowest in 2-1/2 years, as investor appetite for risk increased on expectations of a solid global recovery and further monetary and fiscal stimulus from the United States.

The greenback extended losses after news of proposed Covid relief as well as reports that US Treasury Secretary Steve Mnuchin and House of Representatives Speaker Nancy Pelosi were due to speak at 1 p.m. EST about a stimulus package.

The proposed relief bill was $908 billion and would fund measures through March 31, including $228 billion in additional paycheck protection program funds for hotels, restaurants and other small businesses.

“The theme of the financial markets following the US election has been one of risk-on across all asset classes,” said James Rider, research director at currency advisory firm FXvolResearch in Vancouver, Canada, a view consistent with a weak dollar trend.

“The risk-on sentiment has been directly correlated to the growing confidence that the election outcome is settled and that there will be a peaceful transition of power,” he added.

Currencies that trade higher in times of risk appetite such as the euro, sterling, as well as the Australian, New Zealand, and Canadian dollars all rose against the greenback.

The euro was near a three-month high, while the New Zealand dollar rose to its highest in more than two years.

Bitcoin was also on a tear, hitting a record high just under $20,000. The virtual currency was last down 1.9 per cent t $19,320.

In mid-morning trading, the dollar index fell 0.6 per cent to 91.428, hitting a more than two-year low of 91.405.

The dollar extended losses as well after mixed US economic data showing a rise in construction spending, but a decline in a manufacturing index.

The euro hit a 2-1/2-year high vs dollar above $1.20 and was last 0.8 per cent at $1.2029. The New Zealand dollar hit its highest since June 2018 and was last up 0.7 per cent at US$0.7054.

Nagging worries about rising coronavirus cases have not provided the dollar with much safe-haven support. Speculation is growing that the Fed will act to support the economy through a tough winter before vaccinations become available.

In prepared remarks released late Wednesday on the eve of his Senate testimony, Fed Chairman Jerome Powell said a slowing recovery and a surging pandemic mean the United States is entering a “challenging” few months, with potential deployment of a vaccine still facing hurdles of production and mass distribution before its impact on the economy becomes clear.

The Fed meets to set policy on Dec. 15 and 16.

In separate testimony to be delivered at the same hearing, Treasury Secretary Steven Mnuchin said the economy had made “remarkable progress” recovering ground lost due to the pandemic, and that any further government help should be targeted to “workers and small businesses that continue to struggle,” as opposed to spread broadly in the economy.

Powell and Mnuchin testified on the CARES Act, under which Congress made $2 trillion available to the Treasury as coronavirus aid, a large portion of which was aimed to support the FOMC’s lending programs. — Reuters