Global stocks range-bound ahead of US election and stimulus

London/Tokyo — Global stocks remained within a tight range on Friday, less than two weeks before the US presidential election, with traders looking for a breakthrough in stimulus talks in Washington.

The final debate between US President Donald Trump and his Democratic challenger Joe Biden on Thursday provided few surprises.

European stocks pushed 0.8% higher for their best day in five trading sessions. Strong third-quarter results offset key business survey data showing patchy recoveries across the eurozone’s two largest economies, Germany and France.

Britain’s main stock index added 1.1% as Barclays reported stronger-than-expected third-quarter earnings and British retail sales beat expectations in September.

The chief negotiators for Britain and the EU were set to meet on Friday for talks on a last-gasp trade deal to avert a tumultuous finale to the five-year Brexit crisis.

US S&P 500 futures were up 0.1%, after dipping following the debate. The underlying index had gained about 0.5% the day before on hopes the US Congress and the White House would soon strike a deal on another round of Covid-19 stimulus.

Shares in Asia hardly moved, with MSCI’s broadest index of Asia-Pacific shares excluding Japan 0.1% lower. Japan’s Nikkei ticked up 0.2%. The CSI300 index of mainland China shed 1.3%.

The MSCI world equity index, which follows shares in nearly 50 countries, was up 0.2% and set for its biggest weekly fall in a month.

At Thursday’s debate, Biden renewed his criticism of Trump’s handling of the coronavirus pandemic as Trump levelled unfounded corruption accusations at Biden and his family.

“The market is not going to change significantly in the short term,” said François Savary, chief investment officer at Swiss wealth manager Prime Partners. “There is no reason for markets to take big long positions as we have the election in less than 10 days, and combined with Covid-19 uncertainty it’s a time when people will take a step back and wait for election developments before taking a bet on the markets.”

A widening lead in polls by Biden is prompting many investors to bet on a Biden presidency and a “blue sweep”, in which Democrats win both chambers of Congress.

While Democratic plans to raise taxes on corporate profits and capital gains could hit share prices, their pledge on large stimulus is seen as offsetting those blows.

Clean energy is seen as a potential winner at the expense of conventional energy under a Biden presidency. The Dow Jones oil and gas index is down nearly 49% this year. Biden reiterated his campaign pledge of net-zero emissions by 2050.

Tech sector concern

The Nasdaq index, which had led the market’s rally, has underperformed lately, losing 1.4% so far this week, on concern that Democrats will take a harder stance on big tech firms.

“A blue wave may lead to concerns about the impact on the tech sector, while a Biden win and a split Congress may imply another four years of limited policy changes and politicking,” said Mary Nicola, senior economist at Pinebridge Investments in Singapore.

Expectations of bigger government stimulus have also boosted US borrowing costs. The 10-year US treasuries yield rose to a four and a half month high of 0.870% on Thursday and last stood at 0.853%.

US House of Representatives speaker Nancy Pelosi reported progress in talks with the Trump administration for another round of financial aid, saying legislation could be hammered out “pretty soon”.

In the eurozone, bond yields edged lower after the latest monthly purchasing managers’ index (PMI) data showed the impact of the increase in Covid-19 infections in Germany and France. France saw business activity contract in October. German manufacturing rebounded, but its services dipped.

German 10-year bond yields, the benchmark for the bloc, edged lower to -0.57%. French 10-year borrowing costs dropped a similar amount to -0.29%.

In currency markets, the dollar was 0.03% lower against a basket of currencies early in Europe, shy of a seven-week low hit on Wednesday. The euro was unchanged against the dollar at $1.1818, So was sterling at $1.3084. The Chinese yuan stood at 6.6767 per dollar in offshore trade, off a 27-month high of 6.6278 on Wednesday.

Oil prices eased. Brent futures dropped 0.1% to $42.41 per barrel. US crude futures shed 0.2% to $40.57 per barrel.

Gold was steady, with spot gold little changed at $1,903.36 per ounce.

Reuters