Shares and bonds gain as Biden inches toward victory

Europe and Asia’s stock markets climbed and bonds extended their rally on Thursday as Democrat Joe Biden inched closer to winning the White House and Britain’s central bank become the latest to shovel in additional stimulus.

Biden is now favoured to oust Donald Trump after victories in Michigan and Wisconsin, but Democrats are unlikely to win the Senate. That led investors to wager on a policy gridlock that would prevent greater regulation.

Asian stocks climbed 2% overnight to reach their highest since February 2018. Japan’s Nikkei rose 1.7% to a more than nine-month top, South Korea gained 2.4%, and Chinese blue chips added 1.3% on hopes a Biden White House would ease up on tariffs.

E-Mini futures for the S&P 500 rose 1.6% and NASDAQ futures 2% after both real-time markets had surged on Wednesday as the election results unfolded.

Amazon, Facebook and Google have all soared 6% to 8%. Both Trump and Biden have paths to 270 Electoral College votes as states tallied mail-in ballots. Biden remained optimistic on winning while Trump filed lawsuits and demanded recounts.

The divided Congress that looked likely to emerge was “often seen as the ‘goldilocks scenario’ for financial markets — no radical policy changes and the Fed providing ample liquidity to try to support the economy and financial markets when required,” said Randal Jenneke, a portfolio manager at T. Rowe Price.

Bond markets assumed a divided government would greatly reduce the chance of debt-funded spending on stimulus and infrastructure next year, and thus less bond supply.

That saw 10-year Treasury yields fall to 0.74%, having touched a five-month top of 0.93% at one stage on Wednesday. The overnight drop of 11 basis points was the largest single-day move since March’s COVID-19 panic. The diminished chance of U.S. fiscal stimulus will put pressure on central banks globally to inject liquidity.

The Bank of England added 150 billion pounds to a total target of 895 billion as it sought to cushion Britain’s struggling economy against a second coronavirus lockdown.

The prospect restrained the dollar, after a wild ride overnight. The dollar index was last at 93.362, nearer Wednesday’s low of 93.070 than the top of 94.308.

Shares and bonds gain as Biden inches toward victory, Reuters, Nov 5