Global equity markets rose on Monday, with US stocks hitting a new all-time high, after President Donald Trump belatedly signed a bill to inject $900bn of stimulus into the world’s largest economy.
Wall Street’s S&P 500 index ended the day up 0.9 per cent, surpassing a previous peak it hit earlier in December. The Nasdaq Composite advanced 0.7 per cent.
“Usually markets are solid going into the new year,” said Quincy Krosby, chief market strategist at Prudential Financial. But data showed that “going back to 1920, the first quarter of new [US] administrations can be dicey for markets”, and further uncertainty came from the Georgia run-off election for the US Senate on January 5, which was “too close to call”, Ms Krosby added.
Still, an abundance of liquidity and rock-bottom interest rates continued to provide a favourable backdrop for equity, and “all indicators show bullish sentiment”, she added.
The gains followed a broad rise in Europe, where Germany’s Dax index gained 1.5 per cent to exceed the high it reached in February before the pandemic shook global financial markets. The Europe-wide Stoxx 600 rose 0.7 per cent and France’s CAC 40 advanced by 1.2 per cent. London markets were closed for a public holiday.
Mr Trump had shocked many lawmakers last week when he rejected the $2.3tn legislation, which in addition to the stimulus measures also included funding to keep the US government open up to the end of September and avoid a shutdown that was set to start after midnight on Monday.
Steven Mnuchin, US Treasury secretary, had negotiated the bill with lawmakers, but Mr Trump initially refused to sign it into law. The president demanded that Congress increase the direct payment cheques sent to Americans from $600 to $2,000 an individual. Mr Trump said late on Sunday he still planned to make a push for that increase.
Despite the delay, Goldman Sachs economists said the stimulus measures were about $200bn bigger than they had forecast and accounted for about 4 per cent of US economic output. The Wall Street bank now expects the US economy to grow at an annualised pace of 5 per cent in the first quarter of next year, up from its previous forecast of 3 per cent.
“The new path implies meaningfully higher levels of output in all four quarters and lifts 2021 annual growth to 5.8 per cent,” Goldman said.
Dennis DeBusschere, head of Evercore ISI’s portfolio strategy research team, said the US stimulus bill, last week’s UK-EU trade agreement and low interest rates were “catalysts” that set the stage for “another move higher in stocks”.
He said that while the January 5 run-off votes in Georgia, which could determine control of the upper chamber of Congress, were a source of uncertainty, “investor comfort with the near-term outlook is increasing”.
In currencies, sterling slid 0.8 per cent against the dollar on Monday to $1.3446, leaving the pound further away from the 2020 high of $1.3624 that was hit on December 17. The dollar index, which measures the value of the greenback against a basket of six currencies, edged 0.1 per cent higher at 90.35.
The yield on the 10-year Treasury note rose 3 percentage points to close at 0.93 per cent, as risk appetite pushed investors away from the safety asset.
Investors said the Brexit trade deal cleared one of the major points of uncertainty hanging over the UK pound but that significant work still needed to be done given that it did not cover key industries, such as financial services.
“Despite this being one of the hardest possible Brexit outcomes, it allows for both parties to establish a co-operative platform and possibly allow for improvements eventually,” said Christian Keller, head of economics research at Barclays.
Mr Keller added, however, that the UK bank remained “cautious for the month ahead as acrimonious negotiations have likely resulted in deep diplomatic scars on both sides of the [English] Channel”.
In Asia, equity markets inched higher. China’s CSI 300 closed up 0.4 per cent with Tokyo’s Topix rising 0.5 per cent.