Stocks rally, Treasury yields hit highs on stimulus hopes

FILE PHOTO: The Wall Street sign is pictured at the New York Stock exchange (NYSE) in the Manhattan borough of New York City

By Matt Scuffham, Reuters

Global stocks rallied and benchmark U.S. Treasury yields hit 4-month highs on Friday, buoyed by optimism that a deal can be reached on a fresh U.S. coronavirus relief package.

White House Chief of Staff Mark Meadows late on Thursday said that negotiations with lawmakers on a coronavirus relief package, now totalling $1.9 trillion, have entered a new phase with congressional committee chairs meeting and the two sides trading technical language.

The Dow Jones Industrial Average opened up 66.2 points, or 0.23%, to 28,429.86, the S&P 500 gained 12.62 points, or 0.37%, to 3,466.11 and the Nasdaq Composite added 31.97 points, or 0.28%, at 11,537.98.

“The stimulus talks are continuing so the market is happy about that even though we probably won’t get anything done before the election,” said Thomas Hayes, managing member at Great Hill Capital LLC in New York.

Expectations of bigger government stimulus have also boosted U.S. borrowing costs. Benchmark 10-year Treasury yields rose as high as 0.872%, the highest since June 9. It is now edging above its 200-day daily moving average, which it has held under since December 2018.

The yield curve between two-year and 10-year notes steepened to 71 basis points, the widest spread since June 5.

Gains in U.S. stock markets were capped by investors keeping their powder dry ahead of the U.S. election on Nov. 3.

U.S. President Donald Trump trails former vice president Joe Biden in national polls, but the contest is much tighter in some battleground states where the election will likely be decided.

The final debate between Trump and Biden on Thursday offered few surprises and little new direction.

“There is no reason for markets to take big long positions as we have the election in less than 10 days,” said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners.

European stocks were up 1%, heading for their best day in five trading sessions, but still set for their worst week in a month. Strong third-quarter results offset key business survey data showing patchy recoveries in Germany and France.

Britain’s main stock index rose 1.5% in its best day since early September after Barclays reported stronger-than-expected third-quarter earnings and last month’s British retail sales beat expectations.

The chief negotiators for Britain and the European Union meet on Friday for talks on a last-gasp trade deal to avert a tumultuous finale to the five-year Brexit crisis.

In Asia-Pacific, MSCI’s broadest index of the region’s shares outside Japan was flat, while Japan’s Nikkei ticked up 0.2% and the CSI300 index of mainland China shed 1.3%.

The MSCI world equity index, which follows shares in nearly 50 countries, was up 0.2%, but set for its biggest weekly fall in a month.

In the euro zone, Italian 10-year bond yields dropped 4 basis points to 0.767% as investors seemed confident an S&P Italy ratings review late on Friday will not lead to a downgrade.

In currency markets, the dollar was 0.2% lower against a basket of currencies early in Europe, shy of a seven-week low hit on Wednesday.

The euro ticked up 0.3% against the dollar, as was sterling at $1.3084.

The Chinese yuan also held its ground against the dollar after an official at China’s foreign exchange regulator said it has been more stable than expected, suggesting authorities are not too worried about its recent rise.

Oil prices gained. [O/R] Brent futures added 0.5% to $42.68 per barrel. U.S. crude futures gained 0.5% to $40.84 per barrel.

Spot gold rose 0.4% to $1,911.14 per ounce. [GOL/]

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