World stocks basked in an eighth straight session of gains in their longest winning streak of the year on Thursday, as reassuring trade data from China kept the previous day’s post-U.S. midterms risk rally rolling.
Traders were gearing up for the latest U.S. Federal Reserve meeting in a confident mood and the contrast to a month ago, when markets were taking a painful pounding, could not have been more stark.
European shares jumped to a one-month high after results from SocGen and Commerzbank and France’s Sodexho soothed concerns about slowing corporate earnings. Asia and Wall Street had set similar milestones overnight.
The dollar and bond yields also rose, the U.S. currency pulling away from 2-½-week lows hit after Donald Trump’s loss of the House of Representatives in the midterms reduced the chance of another blizzard of tax cuts.
That in turn had analysts and money managers breathing a sigh of relief that the U.S. economy wouldn’t ultimately overheat and force the Fed to keep jacking up borrowing costs.
“We think we are close to the end of the appreciation of the dollar,” said fund manager Amundi’s Didier Borowski, who expects the Fed to pause its hiking cycle next year as the economy starts to slow.
“Usually we see a year-end rally [in stocks],” he added.
That rally may in fact be arriving early. Hong Kong’s Hang Seng had advanced 0.9 percent and the Shanghai Composite Index climbed 0.2 percent overnight, receiving a mild lift from stronger-than-expected October Chinese exports data.
Australian stocks rose 0.5 percent too, South Korea’s KOSPI added 1.3 percent and Japan’s Nikkei surged 1.8 percent, which was almost as much as Wall Street’s 2 percent leap.
“Going forward, we think the removal of uncertainty and realization of the expected outcome should be supportive for risk assets,” Goldman Sachs analysts said in a report.
Over in the bond market there was plenty of activity too. The 10-year Treasury note yield rose to 3.25 percent, its highest since Oct. 9, and those on Europe’s equivalent German Bund benchmark climbed to a two-week high.
Italian government bond yields were up to five basis points higher in early trade too, ahead of key economic projections from the European Commission which are expected to warn the country’s 2019 deficit will be much higher than suggested by Rome.
It pushed Italy’s bond spread over higher-rated Germany out to 290 basis points and Mizuho rates strategist Peter Chatwell warned of a possible further sell-off if Rome’s populist coalition government thumbs its nose at Brussels again.
“In our model, it doesn’t move fair value much from 300 bps [over Germany] but scary headlines are likely to cause a widening,” he added.
The euro hovered at just above $1.1415, having swung back from $1.15, but the focus was turning to the Federal Reserve later.
It won’t hold a news conference this month but will, as always, publish a statement that is expect to lay the ground for a fourth rate hike of the year next month.
“A split Congress is unlikely to materially alter the Fed’s near-term hiking trajectory and the Fed will be biased to keep raising rates until the data or financial conditions turn,” strategists at Bank of America Merrill Lynch wrote.
The dollar index was up 0.2 percent and on an individual basis the greenback was a shade higher at 113.62 yen and in striking distance of a one-month peak of 113.82 reached the previous day.
In commodities, U.S. crude futures inched up 0.1 percent to $61.73 a barrel after falling to an eight-month trough of $61.20 on Wednesday.
Brent crude dipped 0.08 percent to $72.01 a barrel following a loss of 1.4 percent the previous day.
Oil prices struggled after surging U.S. crude output hit another record and domestic inventories rose more than expected.