Global stocks extend rally; London hits record peak

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What you need to know Wall Street’s S&P 500, Dow and Nasdaq all close at fresh records Tech-heavy index passes 7,000 level for first time but closes below the marker Brighter prospects for tax reform reduce threat to high stock valuations Dollar softer as euro and pound both rise South Africa’s rand buoyed by ANC election win for Cyril Ramaphosa Leading quote “The US Tax Bill will probably be voted on, pass and will turn up on the President’s desk this week,” says Kit Juckes of Société Générale. “A significant boost to the economy? ‘Oh yes, it is’ cries President Trump, who calls it ‘one of the great Christmas gifts’ to the middle class. ‘Oh no, it isn’t’, answers the bond market as 10-year notes meander along. The bond market fell for the president’s policy promises this time last year and is resolutely unimpressed this time round. ‘Bah, Humbug’ sums it up.” Hot topic The Nasdaq Composite surging above the 7,000 level for the first time was the highlight of US tax cut optimism that pushed global stocks to their best daily performance in five months. The growing confidence that proposals to cut US taxes will make it into law is helping the mood and calming fears about the implications of a lack of reform for US assets, which look to have already priced in the fiscal stimulus from such a policy. The Nasdaq Composite rose to a high of 7,003.891 points, but closed at 6,994.76, for a gain of 0.6 per cent. That took its advance this year to 29.9 per cent. Elsewhere in markets, the US dollar was softer, there were gains for the South African rand after elections for the ruling ANC party and also for Portuguese bonds thanks to a Fitch upgrade. “Markets continue to monitor developments in Washington on tax cuts and global stocks are higher for the most part,” said Shaun Osborne of Scotiabank. “The longer run, secular bull trend in the US dollar has reversed in 2017 and we look for losses to extend in the coming year

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Equities The FTSE All World index climbed 0.9 per cent, its biggest upswing since July to close at a record high, lifted by synchronised gains across global stock markets. Asian stocks rose 1 per cent, led by a 1.6 per cent jump for Tokyo’s Nikkei 225 Average, while the Europe-wide Stoxx 600 added 1.4 per cent with Frankfurt’s Xetra Dax also firming 1.6 per cent. “Dealers are also optimistic about the possibility of Germany’s Christian Democratic Union (CDU) striking a deal with former coalition partners the Social Democrats,” said David Madden of CMC Markets. The buying momentum continued into US trading with the S&P 500, Dow Jones Industrial Average and tech-heavy Nasdaq Composite all setting new all-time peaks. The S&P 500 ended the day 0.5 per cent higher, and the Dow Jones Industrial Average was up 0.6 per cent. “We expect lawmakers to pass the tax bill in the coming days or, at the latest, in the first few weeks of 2018,” said Chih-Chieh Chen, investment strategist at Credit Suisse. Forex The dollar index, a measure of the US unit’s strength against a basket of rivals, dipped 0.2 per cent as it gave back some gains from last week that saw it hit one-month highs. “For the US dollar to stage a more sustained rally in 2018, it will require evidence of a larger than expected boost to growth and inflation,” said Lee Hardman of MUFG. “At the current juncture, we remain sceptical over the impact of tax reform and stick to our bearish US dollar outlook.” The euro gained 0.3 per cent to $1.1782 while the British pound rose 0.5 per cent to $1.3381. South Africa’s rand climbed 2.7 per cent to R12.7478 per dollar, tracking the results of the leadership election for the ruling ANC party amid a victory for Cyril Ramaphosa, seen as the more market-friendly candidate

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Fixed income Yields on two-year US Treasuries hit nine-year highs at 1.85 per cent as investors looked to an increase of supply to fund the US tax cuts, before falling back to 1.83 per cent, while the 10-year yield rose 4bp to 2.39 per cent. The yield on 10-year German Bunds was flat at 0.3 per cent as euro area inflation figures brought little surprise for traders, coming in at 1.5 per cent year-on-year. But Portugal’s debt was in demand after Fitch’s two-notch upgrade late on Friday from BB+ to BBB. That pulled it from junk status and added to optimism over the country’s strong recovery after a bailout six years ago. Yields on Portugal’s 10-year bonds dipped as low as 1.72 per cent before later settling down at 1.74 per cent, crossing below those of Italy’s 10-year debt on 1.79 per cent. “While the reaction to Fitch’s upgrade has been fairly small, it leaves Portugal’s 10-year government bond yields below Italy’s for the first time since December 2009,” said Jack Allen of Capital Economics. “Government bond yields in Portugal started 2017 almost twice as high as those in Italy and we suspect that Portugal’s bonds will again outperform Italy’s in 2018,” he added, citing a brighter economic outlook in the Iberian country, that it will be hit less hard by the reduction in European Central Bank purchases and that political risk in Italy was far higher. “We think that yields across the eurozone will edge up next year as the US Federal Reserve raises interest rates and the ECB reduces its bond purchases but we think that government bond yields will not rise as far in Portugal as in Italy,” said Mr Allen, forecasting end-2018 levels of 2 per cent in Portugal and 2.25 per cent in Italy for 10-year yields. Commodities Crude oil prices dipped lower on the day after some early gains. Brent, the international marker, ended the New York trading day up 0.2 per cent at $63.39 per barrel but WTI, the US benchmark, retreated 0.1 per cent to $57.23. Gold gained 0.4 per cent to $1,261.52 an ounce. Additional reporting by Michael Hunter and Nicholas Megaw in London and Edward White in Taipei

Source: AFP