Global markets rise on hopes of a US Covid-19 stimulus deal

London — Global stocks and bond yields rose on Wednesday as Washington moved closer to agreeing on a coronavirus stimulus package, pinning the dollar at its lowest for a month.

The MSCI world equity index, which follows shares in nearly 50 countries, gained 0.1%, buoyed by a 0.5% gain for Asia-Pacific shares outside Japan.

Wall Street was also set for gains, with US stock futures up 0.3%.

European shares were, however, dragged down by the healthcare and real-estate sectors. The broad euro Stoxx 600 fell 0.2% in early trading, with Paris and London shares down 0.2% and 0.4% respectively.

The White House and Democrats in the US Congress moved closer to agreement on a new coronavirus relief package as President Donald Trump said he was willing to accept a large aid bill despite opposition from his own Republican Party.

With just two weeks until the US presidential election, Trump signalled a willingness to go along with more than $2.2-trillion in new Covid-19 relief, a figure Democrats have been pushing for months.

In response, US treasury yields hit a four-month high and the yield curve steepened as expectations grew for more fiscal spending. Investors also sold benchmark eurozone debt, with German Bunds rising to their highest for a week at -0.571%.

The moves in stocks and bonds highlight how importantly new stimulus is viewed for the US and global economies, said Hugh Gimber, global market strategist at JP Morgan Asset Management.

“Everyone knows that more stimulus needs to come through,” he said, cautioning that any package may struggle to pass the Republican-controlled Senate. “But markets are perhaps not always right to be bouncing on speculation.”

Still, bond investors are pricing in a stimulus package, either by the election or early next year should the Democrats win the White House and Senate, Deutsche Bank analysts wrote.

The chances of such a “Blue Wave” have risen notably in the last 3 weeks, they said.

Dollar down and yuan up

The dollar hit a one-month low against a basket of currencies as optimism over a pre-election US stimulus package bought riskier currencies.

The greenback was last down 0.2% at 92.849, with the doubts over whether any package can pass the Republican-controlled Senate kept the dollar from breaching last month’s two-month lows.

Underlying the potential for the Senate to dash investors’ hopes for more stimulus, a senior Senate Republican aide told Reuters that majority leader Mitch McConnell had privately told his fellow Republicans that he did not favour a deal before the November 3 elections.

Still, underscoring appetite for risk among currency traders, the Chinese yuan hit a more than-two year top as the world’s number two economy rebounds strongly from the pandemic, dragging riskier Asian currencies along with it.

The yuan was up 0.4% at 6.6480, taking gains against the dollar this year to about 4.5%. Its rise helped lift the Australian dollar, weighed down by expectations of a rate cut in November, from Tuesday’s three-week low.

Alternative assets also fared well. Bitcoin, which is often sought during periods of appetite for risk, climbed nearly 3% to break $12,000 for the first time since August and was not far off its highest this year.

Reuters