With global stock markets basking in the afterglow of Dow crossing 20,000 for the first time, on Thursday they propelled higher in sympathy with the US, as Asia and Europe are trading solidly in the green, as is the dollar which rebounded strongly off a 5 week low. Copper touched the highest price since November after reports of lower production. Global government bonds extended declines as France's 10-year yield breached 1% for the first time in more than a year. Gold declined.
The Dow had been flirting with 20,000 points for weeks so it brought widespread cheer when it broke through. It only topped 19,000 in November and this was the second-shortest time on record for the index to jump 1,000 points. The next big milestone on deck is the S&P 2,300 – also the year end target for roughly half of Wall Street strategists- which should be taken out shortly after the open.
As noted yesterday, the ‘Trump trade', based on vague hopes of U.S. stimulus reflating growth, is back on – egged on by some impressive corporate earnings, higher commodity prices and signals that global growth is finally finding some traction. The MSCI's 46-country All World index was within touching distance of its lifetime high as European stocks rose 0.5% to their highest since Dec. 2015, and within 1.5% of their all time highs, completing a global loop after Asia's main bourses also saw a bumper session.
As Bloomberg notes, record highs in the world's biggest equity indexes is fueling optimism that renewed growth in the U.S. will filter through into other major global economies, creating demand for commodities exports and driving investors out of fixed-income assets and gold. The rally may meet resistance from economic indicators that have reached the upper reaches of historical ranges, according to Deutsche Bank AG strategists.
“The surge in growth momentum that has been a key driver of the sharp moves in global equity and rates markets is likely to fade over the coming months,” according to a note published by strategists led by London-based Sebastian Raedler Wednesday.
Others were more optimistic: “The reflation trades are being driven by two main things,” said Neil Williams, chief economist at fund manager Hermes. “Countries more willing to open the fiscal box and we are awaiting Mr Trump's long-awaited tax cuts in mid-year. And second is the prospect of ultra-loose monetary policy.”
A curious outlier was the dollar which as first pointed out here, has decoupled from the Trump Trade, and was wallowing near a seven-week low after losing its momentum this year and taking a dislike to Trump's more controversial plans such as building a wall on the border with Mexico. However, the dollar index clawed back from its overnight lows to stand flat on the day.
“The problem that the greenback is having right now is two- fold – first Trump has been talking down the currency and second, his policies make foreign investors nervous,” wrote Kathy Lien, managing director of FX strategy for BK Asset Management. Sterling hit a six-week high after solid GDP data but then turned jumpy.
There were no such concerns in bond markets. Ten-year U.S. Treasury yields were back above 2.5% to their highest of 2017 so far and the equivalent German and French yields jumped to their highest levels in over a year.
In commodities, crude oil prices also bounced as global sentiment lifted and the dollar weakened, which helps non-U.S. buyers of dollar-denominated raw materials. WTI was up 0.8 percent at $53.18 a barrel after losing the same amount the previous day. Brent added 0.8 percent to $55.53 a barrel, while cooper hit a two month high as a strike loomed at the world's biggest mine in Chile.
Europe's cross-country European STOXX 600 index was trading 0.6% higher by 0945 GMT at its highest since December 2015. Germany's DAX hit its highest since May 2015 and London's FTSE was near an all-time record. Milan also showed little sign of nerves after Italy's constitutional court on Wednesday opened the way for fresh elections in the country this year, potentially in the summer. Drug and healthcare companies lead the 19 industry groups of the Stoxx 600, with 40 of 42 members higher. Swiss drugmaker Actelion Ltd. (ALIOF) jumped as much as 22% percent after agreeing to a $30 billion takeover by Johnson & Johnson (JNJ).
Asian shares had a good day too. Japan's Nikkei brushed aside a stronger yen to rise 1.7 percent, Hong Kong's Hang Seng .HSI climbed 1.3 percent and Shanghai .SSEC edged up ahead of a week-long Lunar New Year holiday. “Today's excitement mainly comes from strong U.S. stocks overnight, but people are also positive about Japanese companies' earnings, especially machinery manufacturers,” said Takuya Takahashi, a strategist at Daiwa Securities in Tokyo.
