Routs in global bonds and emerging markets intensified on Monday, while the U.S. dollar climbed as investors positioned for the wave of U.S. fiscal stimulus that President-elect Donald Trump has pledged to unleash.
The yield on 30-year Treasuries rose to the highest since January, with last week’s record debt sell-off bleeding into Monday trading and weighing on credit markets. The Bloomberg Dollar Spot Index advanced to a nine-month high as the U.S. currency strengthened against most major counterparts. American stocks fluctuated and shares in developing nations sank to a four-month low. Copper climbed and oil fell with gold.
Mr. Trump’s election as U.S. President is sending shock waves through global markets on speculation his pledge to ramp up infrastructure spending will boost growth and inflation and trigger faster hikes in U.S. interest-rates. About $1.2-trillion was wiped off the value of bonds worldwide last week as equities added about $1-trillion and base metals soared by the most in four years. Emerging markets are being hit by an exodus of capital amid concern Mr. Trump will also implement more protectionist trade policies.
“Trump has introduced so much uncertainty -- around the fiscal outlook, the outlook for foreign demand for Treasuries given his protectionism and his views on China, uncertainty around the outlook for the Fed,” said John Davies, an interest-rate strategist at Standard Chartered Plc in London, which adjusted its forecast for 10-year Treasuries yields to 3 per cent in the end of 2017 from below 2 per cent previously. “There’s an uncertainty premium, rather than just expectations of much more Fed tightening,” being priced into Treasuries, he said. “We think there’s room for this to continue.”
Canadian stocks rose, after tumbling the most in two months last week, as gold producers advanced after the metal pared losses while financial services and consumer discretionary shares also gained.
The S&P/TSX Composite Index rose 0.3 per cent, or 43.10 points, to 14,598.51 in Toronto, after plunging 1.3 per cent on Nov. 11. The equity benchmark remains up 12 per cent in 2016, the top performer among developed markets tracked by Bloomberg. Canadian stocks are about 9 per cent more expensive than their peers in the S&P 500 Index.
Toronto-Dominion Bank rose 2 per cent while Royal Bank of Canada added 0.8 per cent to lead the nation’s largest lenders higher. Manulife Financial Corp. gained 3.3 per cent to extend a four-day rally. Manulife, Canada’s largest life insurer, posted third-quarter profit that almost doubled on gains from its life insurance business and investments.
Amaya Inc. jumped 14.4 per cent, the most since March, to lead consumer shares higher after its founder made a cash offer to take the Canadian owner of the PokerStars online gambling service private in a deal valued at about $6.7-billion including debt. The offer, at $24 for each outstanding common share, represents a 31-per-cent premium to Friday’s close at $18.34 in Toronto. Amaya also reported third-quarter earnings and full-year projections that topped analysts’ estimates.
Raw-materials producers added 0.6 per cent as a group, rebounding from a two-day slide. Gold was down 0.4 per cent, paring an earlier loss of as much as 1.1 per cent. The precious metal has whipsawed after topping $1,300 an ounce in the immediate aftermath of Donald Trump’s surprise presidential victory. Investors initially seeking a haven from volatility have instead warmed to the idea of a Trump presidency that favors tax cuts and infrastructure spending to boost U.S. growth.
Energy stocks jumped 1 per cent as oil prices steadied from three-month lows on renewed hopes for OPEC cuts.
In New York, the Dow Jones industrial average was unofficially up 20.96 points, or 0.11 per cent, to 18,868.62, the S&P 500 lost 0.25 points, or 0.01 per cent, to 2,164.20 and the Nasdaq Composite dropped 18.72 points, or 0.36 per cent, to 5,218.40.
The tech-heavy Nasdaq Composite has remained under pressure since the Nov. 8 election as investors poured more money into sectors such as financials, industrials and energy, which are seen benefiting from President-elect Donald Trump’s policies.
The S&P technology index pared some losses as the afternoon wore on but finished down 1.7 per cent.
Apple was down 2.5 per cent and weighed the most on the Nasdaq and the S&P 500, followed by Amazon.com, Microsoft and Facebook.
The Dow, which capped off its best week in five years on Friday, hit a another record high just after the start of trading but soon lost those gains.
Since valuations of these companies have been driven up in recent years, investors are ready to put their money to work in companies such as banks which benefit from rising interest rates, said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.
“It’s more greed than fear. These other industries - financials, energy and industrials - haven’t necessarily benefited over the last couple of years. Maybe it’s their turn,” said Ms. Forrest.
Stocks have outperformed bonds since Mr. Trump’s presidential election win, on speculation his pledge to spend more on infrastructure will trigger interest-rate hikes amid a pickup in growth and inflation. Equities had their biggest inflows in 17 weeks as bonds saw redemptions, for their largest gap in 12 months, a Bank of America Corp. report on Thursday showed.
“There’s a lot of re-positioning going on in the market rather than the whole market rolling over, with the sectors expected to do well under Trump outshining those which should fare worse,” said Jasper Lawler, a London-based analyst at CMC Markets Plc. “We are starting to see a reallocation according to the fiscal policy.”
Banks and miners again provided the main support to European shares amid continued investor optimism about the benefits of a Trump presidency. The Stoxx Europe 600 Index rose 0.2 per cent, paring earlier gains.
The MSCI Emerging Markets Index fell 1.3 per cent, headed for its lowest close since July 8.
Ten-year U.S. Treasury yields increased seven basis points, or 0.07 percentage point, to 2.22 per cent, the highest since early January. They surged 37 basis points last week, the most in three years, amid speculation Mr. Trump’s plans to boost spending and cut taxes will widen the budget deficit and stoke inflation. The 30-year yield increased as much as 13 basis points to 3.06 per cent.
Federal Reserve Vice Chairman Stanley Fischer said Friday that the central bank was close to achieving its goals of maximum employment and price stability, strengthening the case for an interest-rate increase. Pacific Investment Management Co. says long-term yields may have bottomed out and predicts three rate hikes by the end of next year. Futures prices indicate a 92-per-cent chance of a tightening at the December policy meeting.
“Yields will continue to rise over the next year,” said Hiroki Shimazu, an economist and strategist at the Japanese unit of MCP Asset Management in Tokyo. “The fundamentals are very strong, particularly in the U.S. There are some signs of higher inflation pressures. Trump is pushing this phenomenon.”
Benchmark German 10-year bonds posted their longest losing streak since May, and those on similar-maturity Italian debt climbed to the highest since July 2015. U.K. 10-year gilts extended their slide to a sixth day.
The Bloomberg Dollar Spot Index rose 0.9 per cent, rising for a fourth-straight day.
The euro fell versus the greenback for a sixth day, its longest run of declines in six months, dropping 0.9 per cent to $1.0758. The yen sank 1.3 per cent and touched its weakest level since early June. Japan’s economy expanded by an annualized 2.2 per cent in the last quarter, data showed Monday, exceeding the 0.8-per-cent expansion forecast in a Bloomberg survey and easing pressure on the Bank of Japan to add stimulus.
“The dollar is strengthening along with the rise in U.S. yields, reflecting expectations for economic expansion from fiscal spending,” said Yunosuke Ikeda, Nomura Holdings Inc.’s head of Japan foreign-exchange research in Tokyo. “Japan’s 2 percent growth can be used as a reason for the BOJ not lowering interest rates for a while.”
Copper rallied as much as 3.4 per cent in London. It surged 11 percent last week as Trump pledged to spend more than $500 billion rebuilding U.S. infrastructure and Chinese investors stepped up purchases.
Iron ore climbed to a two-year high on the Dalian Commodity Exchange as data showed rising steel output in China, the world’s largest steelmaker. Goldman Sachs Group Inc. said the initial reaction of iron ore and copper prices to the infrastructure spending proposed by Trump has been excessive and analysts reiterated their view for sequentially lower prices.
Gold touched a five-month low, after sliding last week by the most in three years as the prospect of Fed rate increases strengthened the dollar.
Oil prices were largely steady on Monday, rebounding from three-month lows, on a report saying that OPEC members were seeking to resolve their differences on a deal to cut production ahead of a meeting later this month.
OPEC kingpin Saudi Arabia and fellow exporters Iran and Iraq have been at odds over how to rein in supply to reduce a glut in global markets. The lack of agreement within the Organization or the Petroleum Exporting Countries following a tentative deal in September has put pressure on benchmark prices.
Qatar, Algeria and Venezuela were leading the push to overcome the divide between the group’s biggest producers ahead of an output policy meeting on Nov. 30 in Vienna, according to a Bloomberg report.
Saudi Arabia, Iraq and Iran are still at odds over how to share output cuts, the report said.
Saudi Energy Minister Khalid al-Falih said it was imperative for OPEC to reach a consensus on activating the deal made in September in Algiers to cut production, according to Algeria’s state news agency APS on Sunday.
Brent crude futures settled at $44.43 per barrel, down 0.72 per cent, after falling to as low as $43.57. U.S. crude ended the session down 0.2 per cent at $43.32, after hitting a low of $42.20. Both benchmarks’ session lows were the weakest since Aug. 11.
With files from ReutersReport Typo/Error
- Manulife Financial Corp$24.36+0.67(+2.83%)
- Gold Front Month Futures$1,166.40-3.40(-0.29%)
- Crude Oil Front Month Futures$50.89+0.05(+0.10%)
- S&P/TSX Composite15,295.20+57.45(+0.38%)
- Toronto-Dominion Bank$65.17+0.61(+0.94%)
- Royal Bank of Canada$89.43+1.10(+1.25%)
- Dow Jones Industrials19,614.81+65.19(+0.33%)
- S&P 500 INDEX2,246.19+4.84(+0.22%)
- NASDAQ NMS COMPOSITE INDEX5,417.36+23.59(+0.44%)
- Apple Inc$112.12+1.09(+0.98%)
- Amazon.com Inc$767.33-3.09(-0.40%)
- Microsoft Corp$61.01-0.36(-0.59%)
- Facebook Inc$118.91+0.96(+0.81%)
- Updated December 7 11:07 PM EST. Delayed by at least 15 minutes.