LONDON / TOKYO (Reuters) – World stocks rallied Wednesday amid expectations of hefty US spending after Janet Yellen, nominee for US Treasury Secretary, urged lawmakers to “act big” to save the economy and later worry to worry about debt. Oil rose and the dollar fell in response.
During her confirmation hearing on Tuesday, Yellen said the benefits of a large stimulus package to counter the coronavirus pandemic outweighed the costs of increased debt.
Pandemic relief would take precedence over tax increases, she said, calling on businesses and the wealthy – both winners of the 2017 Republican tax cuts – to “pay their fair share.”
Europe recovered, with the Euro STOXX 600 rising 0.4%. The Frankfurt and Paris indices both rose by a similar amount, although London stocks were flat.
Luxury stocks were the biggest boost, with Richemont’s quarterly sales up 5%, led by strong growth in its jewelry brands in Asia and the Middle East.
The cheerful mood echoed that in Asia, where MSCI’s Asia-Pacific index rose 0.8% outside Japan to its all-time high. Hong Kong’s Hang Seng gained 1% to near its 2019 peak. Australian stocks hit an all-time high.
US President-elect Joe Biden, who will be sworn in on Wednesday, proposed a $ 1.9 trillion stimulus package last week to boost the economy and speed up vaccine distribution.
“They realized there are some limits to what monetary policy can do to bring about changes in the real economy,” said Shaniel Ramjee, senior investment manager at Pictet Asset Management. “The Fed will continue to buy bonds issued by the US Treasury to fund its fiscal programs.”
The MSCI world stock index, which tracks stocks in nearly 50 countries, last rose 0.1%.
On Wall Street, Nasdaq futures were up 0.6% as Netflix rose 12% following the close of strong subscriber growth and projections that it will no longer be necessary to incur debt. S&P 500 futures are also up 0.2%.
Biden will take office on Wednesday under unprecedented security measures following the Jan. 6 attack on the Capitol.
DEFENSIVE DOLLAR
The dollar fell from a month high following Yellen’s comments. Against a basket of currencies, it fell 0.1% to 90,285 last time, up 1.2% from a three-year low two weeks ago.
Safe haven gold rose 0.8% to $ 1,855 an ounce.
The euro was at $ 1.2145, up 0.1% and below its month and a half low on Monday. It received support from an investor sentiment survey that exceeded forecasts and survived a vote of confidence from the Italian government.
Italian benchmark loan costs fell to their lowest level in more than a week on Wednesday after Prime Minister Giuseppe Conte narrowly managed to stay in office – albeit now at the head of a minority government.
Italian 10-year bond yields fell to their lowest level since January 11 – before Conte lost his majority – by 0.533%, down 2 basis points in a day.
Oil prices rose in the hope that the stimulus measures proposed by Biden will increase economic output.
US crude oil futures contributed 0.8% to $ 53.39 a barrel. International benchmark Brent futures were up 0.7% to $ 56.31 a barrel.
“The continued acceleration in nominal income growth will ensure a continued sharp recovery in activity, which will serve as a further tailwind for cyclical parts of the market, particularly materials and energy,” said Brendan Mulhern, strategist for BNY Mellon Global Real Return Strategy at Newton Investment Management.
Image: on the dollar:
Reporting by Tom Wilson in London and Hideyuki Sano in Tokyo; additional reporting by Tom Westbrook in Singapore; edited by Ana Nicolaci da Costa and Stephen Coates