Global stocks slip after US election rally; bond yields and dollar climbs
Bonds rise for fifth day to support US dollar, putting commodities and emerging markets under the gun
Stocks on major world markets gave back some of the week’s gains on Friday, while global bond yields rose for a fifth day, supporting the US dollar but pressuring commodities and emerging markets.
Investors are anticipating US President-elect Trump’s policies will include lower tax rates and more infrastructure spending to grow the economy, but at the expense of a wider fiscal deficit and inflation.
The Dow Jones industrial average ended at a record closing high of 18,847.66. The S&P 500 index slipped 0.14 per cent to 2,164.45, weighed down by weakness in energy stocks as oil prices fell, but the benchmark index was up 3.8 per cent for the week, as was the Nasdaq Composite, its best week since 2011.
Since the election on Tuesday, equity sectors that have benefited include banks and pharmaceuticals which may see less regulation under a Trump administration, while technology stocks are seen threatened by anti-trust policies and possible disruption of global supply chains posed by more protectionist trade policies.
The S&P financials stock index closed up 0.4 per cent on Friday and up 11.3 per cent for the week, the best weekly performance since May 2009.
The S&P healthcare stock index fell 1.5 per cent on Friday but ended the week up 5.8 per cent, its best week gain in over two years.
The Nasdaq biotechnology index fell 0.64 per cent on Friday but ended the week up 10 per cent, its best week since 2000.
“Wall Street is going to be watching a lot of (Trump’s) appointments and policy announcements to see whether it validates the more optimistic tone we’ve seen in the markets in the past few days,” said Alan Gayle, senior investment strategist and director of asset allocation at RidgeWorth Investments in Atlanta, Georgia.
European shares fell on Friday also as commodities stocks fell with oil prices and stocks exposed to emerging markets slumped on concern that Trump will introduce protectionist trade policies.
The STOXX Europe 600 index closed 0.4 per cent lower but the pan-European index gained 2.6 per cent this week, the best weekly performance since mid-July.
“After panic buying, a more rational and selective phase has started,” said Giuseppe Sersale, fund manager at Anthilia Capital in Milan. “The political and economic obstacles to his plans must not be underestimated”.
The mining sector index fell 2.0 per cent as investors took profits from a rally of more than 10 per cent in basic resources stocks this week.
The European oil and gas index closed 2.2 per cent weaker, mirroring steep losses in crude oil prices after OPEC said October output reached another record, casting doubt on whether it can limit persisting oversupply.
A sell-off in emerging markets hurt companies such as Standard Chartered and South African paper and packing maker Mondi, which dropped 6.3 per cent and 4.7 per cent respectively.
The MSCI emerging markets index fell 2.9 per cent.
MSCI’s all-country world index lost 0.6 per cent but saw its best week in seven.
Global bond markets sold off further Friday though the US Treasury market was closed for the US Veterans Day federal holiday. US Treasury futures fell to 10-month lows on Friday.
In Europe, Italian 10-year yields climbed over 2.0 per cent for the first time since September 2015 while German 10-year yields rose for a fifth day.
Global bond markets have seen the biggest loss of value this week since June 2013 when the Federal Reserve first discussed “tapering” its bond buying programme.
The Federal Reserve is monitoring an increase in long-term US government borrowing costs and will adjust policy accordingly if necessary, Fed Vice Chair Stanley Fischer said on Friday.
In his first remarks since the election of Donald Trump as US president, Fischer added that economic growth prospects appear strong enough for the Federal Reserve to proceed with a gradual increase in interest rates.
As US Treasury yields rose, the US dollar posted its biggest weekly gain in a year, forcing some emerging market central banks to intervene to prevent further capital outflows.
Against a basket of major currencies, the dollar firmed 0.28 per cent on Friday and was up 2.0 per cent for the week.
The Mexican peso slid on Friday to a record low of over 21 pesos per US dollar before recovering some ground.
Trump has vowed to build a border wall between Mexico and the United States, deport millions of illegal immigrants, and threatened to rip up the North American Free Trade Agreement.
The peso, the world’s worst-performing currency this year, took its biggest two-day tumble in more than 20 years following Trump’s victory, while Mexican stocks lost nearly 5.0 per cent.
Both Brent crude oil and US crude settled down more than 2.0 per cent after OPEC said October output reached another record while Baker Hughes data showed US oil drillers’ increased rigs this week for a 21th week in the last 24.
Copper pulled back after a sharp rally this week on expectations of an infrastructure boost from Trump’s policies. The metal was 0.9 per cent lower at US$5,549 a tonne but was still up more than 11 per cent on the week, its best week in five years.
Gold dropped 2.8 per cent to $1,224.76 an ounce after touching a session low of $1,219.40, the weakest since June 3, and was down more than 6.0 per cent for the week, its worst week in 3-1/2 years as investors piled into industrial commodities seen benefiting from Trump’s promises of economic growth.