Donald Trump

Wall Street soars to record top on Trump bets as bonds tumble

PUBLISHED : Friday, 11 November, 2016, 7:58am
UPDATED : Friday, 11 November, 2016, 8:00am

Donald Trump’s unlikely rise to power is providing a shot in the arm for global financial markets, with stocks and metals rallying on optimism his fiscal-stimulus plans will boost the economy. Bonds tumbled.

The MSCI All Country World Index erased its monthly decline and the Dow Jones Industrial Average climbed to a record high. Copper posted its biggest back-to-back surge in three years, gaining alongside lead, zinc, tin and aluminium. The dollar rose against most major peers, while government bonds extended their sell-off as Trump’s win bolstered bets on faster inflation. Latin American equities, debt and currencies plunged on speculation higher US interest rates would damp the appeal of riskier emerging-market securities.

Traders are betting Trump will lower taxes, ease corporate regulation and ramp up spending to spur the world’s largest economy. He’s pledged to at least double the US$275 billion five-year building plans of Democratic rival Hillary Clinton, while saying infrastructure will become “second to none” with millions working on projects. A statement posted on the president elect’s official transition website said the new administration will replace the Dodd-Frank Act financial-sector law with pro-growth policies.

“People are going through the possibilities about what Washington looks like today and what Washington can do or not do for them,” said John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York. “Corporations feel there’s a less restrictive hand. People may take that as a positive.”

MSCI’s global gauge rose 0.2 per cent at 4 p.m. in New York. The S&P 500 Index added 0.2 per cent to 2,167.48, and the Dow Average jumped 218.19 points. Some of the biggest technology companies from Apple to Microsoft sent the Nasdaq Composite Index down. Meanwhile, the small-cap Russell 2000 Index extended a five-day rally to 8.2 per cent.

Banks and health-care shares surged on bets a Trump administration will roll back regulatory scrutiny of the industries. Industrial shares rallied as the Republican plans to boost infrastructure spending. Utility and real-estate stocks tumbled as a rout in bonds pushed yields higher, damping demand for the shares’ relatively high dividend payouts.

“Yields are moving their way higher, that’s good for banks,” said Art Hogan, chief market strategist and director of research for Wunderlich Securities in Boston. “If there’s going to be a friendlier regulatory environment that’s going to be good for banks. That’s the tailwind behind financials we haven’t seen for a long time.”

The Stoxx Europe 600 Index erased gains as a slide in utility and real-estate shares outweighed a rally in banks. The MSCI Emerging Markets Index dropped to the lowest since August, with benchmarks in Argentina, Mexico and Brazil slumping more than 3.2 per cent. Russian shares rallied on bets Trump will mend ties with Moscow.

Benchmark 10-year note yields rose eight basis points, or 0.08 percentage point, to 2.14 per cent, according to Bloomberg Bond Trader data. They were on course for the highest level since January. The yield on 30-year bonds increased 10 basis points to 2.95 per cent, after jumping the most since October 2011.

Treasury’s $15 billion 30-year debt auction Thursday again showed waning investor appetite for US debt as Trump is seen ramping up spending to boost the economy, potentially widening the budget deficit and stoking inflation.

Investors from Pacific Investment Management Co. to TIAA Global Asset Management see the surge in long-term US Treasury yields as a sign inflation will in fact be on the rise. That means the long-dormant part of the Fed’s dual mandate could force policy makers to act more swiftly to raise borrowing costs than they have in 2016.

“We see a higher and more balanced inflation forecast and more rapid normalisation of policy,” Scott Mather, chief investment officer for core strategies at Pimco, wrote in a note. “This means the Fed will move faster on rate increases than the market had been pricing for in the year ahead,” he said, adding that he expects “two to three rate hikes before the end of 2017.”

Most industrial metals rallied on speculation that commodities used to build everything from airports to bridges will benefit under Trump’s presidency.

“The clearest message delivered by Donald Trump in his election victory speech was a focus on greater infrastructure spending in the US,” Goldman Sachs Group analysts including Damien Courvalin and Jeffrey Currie said in a November 9 report. “Without specific details it is hard to quantify the impact on commodity demand, however such policies would support steel, iron ore, zinc, nickel, diesel and cement.”

Copper for delivery in three months jumped 3.5 per cent to $5,601 per tonne ($2.54 a pound) on the London Metal Exchange, after hitting a 16-month high.

As optimism mounts that Trump’s plans will boost global growth, investors are unwinding options that give holders the right to buy December gold futures at higher prices, with the most-active call slumping for a fourth straight day. Contracts for December delivery fell 0.6 per cent to settle at $1,266.40 an ounce on the Comex in New York.