Global stocks rally with commodities on Trump bets as dollar weakens

Billionaire activist-investor Carl Icahn left President-elect Trump’s victory party to bet about US$1 billion on US equities. — Reuters file pic
Billionaire activist-investor Carl Icahn left President-elect Trump’s victory party to bet about US$1 billion on US equities. — Reuters file pic

HONG KONG, Nov 10 — Stocks rallied with commodities after the initial shock of Donald Trump’s election victory gave way to optimism that his plans for fiscal stimulus will provide a boost to the global economy. Bloomberg’s dollar index retreated from an eight-month high.

Benchmark share gauges climbed in Europe and Asia, led by gains in raw-materials producers. Futures on the S&P 500 Index rose after swinging wildly in the last session, when they briefly sank by a 5 per cent daily limit as the results of the US presidential vote came out. Australia’s 10-year bond yield jumped amid speculation Trump’s spending plans will fuel inflation, while New Zealand’s dollar fell after the central bank expressed concern about the currency’s strength. Copper, aluminium and nickel surged to one-year highs.

There’s been a U-turn in investor sentiment since the largely unexpected win for Trump triggered a knee-jerk selloff in equities and rush into haven assets. While it’s common for stock-market volatility to surge after US elections, initial moves don’t tend to prove long-lasting and that also proved the case in the wake of Britain’s June vote to leave the European Union. Trump has signalled spending of more than US$500 billion (RM2.1 trillion) to rebuild US infrastructure and also pledged to lower taxes.

“There will be short-term volatility following the Trump victory but this is going to be short-lived, much like Brexit,” said Joshua Crabb, Hong Kong-based head of Asian equities at a unit of Old Mutual Plc. “This outcome isn’t as bad as people think. There’s going to be some tax cuts and fiscal stimulus. That would be good for corporate earnings and will be positive for equities.”

Stocks

The Stoxx Europe 600 Index gained 0.6 per cent as of 8:09am London time, rising for a fourth day after a report indicated that the UK housing market strengthened in October. Siemens AG, Vivendi SA and Zurich Insurance Group AG all surged after announcing quarterly earnings that beat analysts’ estimates.

The MSCI Asia Pacific Index climbed 3.2 per cent, practically erasing yesterday’s slide. Japan’s Topix index jumped more than 5 per cent, after sinking 4.6 per cent in the last session, and Australia’s benchmark rallied by the most in five years.

BHP Billiton Ltd., the top miner, and Rio Tinto Group surged by more than 8 per cent in Sydney, their biggest increases in nine months. In Hong Kong, Jiangxi Copper Co., China’s second-largest producer by output, rose as much as 13 per cent and Russian aluminum maker United Co. Rusal Plc jumped by the most on record. Trump’s spending plans will spur demand for copper and other commodities at a time of tightening global supply, according to Jefferies Group LLC.

“It’s hard to make a directional bet as no one knows for sure what Trump will do,” said Hao Hong, chief strategist at Bocom International Holdings Co. in Hong Kong. “Bets that are relatively certain include infrastructure projects, defense spending and unfriendly trade policy. Commodity stocks are jumping on such expectations.”

S&P 500 futures advanced 0.4 per cent, after closing up 1.2 per cent yesterday. Billionaire Carl Icahn said he left President-elect Trump’s victory party to bet about US$1 billion on US equities. The investor said that the US economy still faces challenges but Trump will be “a positive, not a negative” for the country.

Currencies

The Bloomberg Dollar Spot Index slipped 0.2 per cent after rallying 1.4 per cent yesterday. The implied probability of a December Fed hike, which had fallen to less than 50 per cent as results pointed to a Trump triumph, has jumped back to around 82 per cent since he announced his spending plans. San Francisco Fed President John Williams said yesterday that the argument for gradual interest-rate increases “still makes sense to me”.

“A Trump presidency is dollar bullish because Trump’s economic policies are inflationary and will force the Fed to raise the Funds rate at a faster pace than otherwise,” said Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia.

The yen advanced 0.1 per cent to 105.61 per dollar, set for the first gain in a week. It jumped as much as 3.9 per cent in the last session, before closing lower, and Japan’s former top currency official Eisuke Sakakibara said today it may strengthen to 90 within the next six months.

Australia’s dollar and Russia’s rouble rose 0.8 per cent, leading gains among the currencies of resource-exporting nations. Mexico’s peso advanced 0.3 per cent, after plunging yesterday by the most in a decade amid concern exports will be hurt by protectionist trade policies advocated by Trump.

The yuan slipped to a six-year low amid concern Chinese exports will also suffer. Trump has called China a “grand master” at currency manipulation and has threatened tariffs of up to 45 per cent on imports from the Asian nation, a step that Commonwealth Bank of Australia estimated would cut Chinese shipments to the US by 25 per cent in the first year.

New Zealand’s dollar dropped versus all of its G-10 peers after the central bank cut its benchmark interest rate to a record low and Assistant Governor John McDermott said the authority is concerned about the currency’s strength and borrowing costs may be reduced further.

Commodities

Iron ore jumped by the daily limit on the Dalian Commodity Exchange to the highest level since October 2014, before paring gains. Copper surged 5 per cent in London, the biggest gain since May 2013. Nickel, tin, zinc and lead all rallied more than 2 per cent.

“Potential US fiscal stimulus and positive Chinese economic data is working in favour to spur further copper rallies,” Xiao Fu, head of commodity markets strategy at Bank of China International in London, said in an e-mailed report. “Speculators are finally returning to the copper market.”

Crude oil rose 0.7 per cent to US$45.45 a barrel in New York after data showed US stockpiles expanded for the second week in a row.

Gold was up 0.7 per cent. It jumped as much as 4.8 per cent yesterday as the US election results spurred demand for the safest assets, before giving up almost of the advance as the conciliatory tone of Trump’s victory speech helped revive risk appetite.

Bonds

Ten-year US Treasury yields declined by four basis points to 2.01 per cent, after soaring 20 basis points in the last session as Trump’s spending pledges sent a gauge of inflation expectations to the highest point since July 2015. An auction of the tenor drew the weakest demand since 2009 yesterday, when the market value of bonds worldwide tumbled by US$337 billion. The US government has an offering of 30-year notes scheduled for today.

“Trumpeconomics implies a likely faster pace of Fed rate hikes next year,” said Robert Rennie, head of financial markets strategy at Westpac Banking Corp. in Sydney. “It is clear that this wave of populist vote has reflected, in part, dislike of tight fiscal, easy monetary policy. If we are now seeing a shift in the US, then that means markets will have to reprice this.”

Australia’s government bonds joined the global selloff, lifting the 10-year yield by 28 basis points to 2.50 per cent. The rate on similar-maturity notes in Germany increased for a fourth day, advancing to 0.22 per cent. — Bloomberg