Global equities on track for best week since November


Global equities looked set to cap the week on a strong note, following the confirmation of Joe Biden as the next US president and expectations that his administration will inject more support into the economy.

The Stoxx Europe 600 rose 0.6 per cent in early dealings, putting the region-wide benchmark on track to close the week nearly 3 per cent higher in its best performance since the vaccine-led rally of early November.

An MSCI index tracking developed market equities rose 0.3 per cent to a fresh high, supported by gains in Asian markets, leaving the global benchmark heading for its best first week of the year since 2018. London’s FTSE 100 was flat in morning trading but on course for a weekly rise of more than 6 per cent, its strongest showing since mid-November.

Investors expect the Biden administration to sign off on more fiscal stimulus, to add to the $900bn already agreed among US lawmakers, after Democratic victories in Georgia’s run-off elections gave the party control of both houses of Congress.

“This is probably the best news for the economy since vaccines were approved,” said Adam Kurpiel, head of rates strategy at Société Générale.

Column chart of % weekly gain for Stoxx 600 showing European equities on track for best week since November's fierce rally

Traders looked past the violent clashes in Washington on Wednesday, when a pro-Trump mob stormed the Capitol and interrupted the confirmation of Mr Biden as president-elect.

“The only noise in markets yesterday was a bullish stampede as [they] continued their strong start to 2021,” said Jim Reid, a strategist at Deutsche Bank. Investors “brushed off the violence in Washington to look forward to the prospect of more stimulus and less political volatility under a new administration in less than two weeks’ time”.

Expectations that additional stimulus will also stoke inflation sent the yield on the 10-year US Treasury above 1 per cent this week for the first time since the pandemic roiled markets in March. The 10-year note climbed a further 0.01 percentage points to 1.08 per cent on Friday.

Line chart of MSCI World price index showing Stocks in developed markets set new record high

US futures indicated that the benchmark S&P 500 index would rise 0.3 per cent when markets open later, having hit having another record high on Thursday.

“Value” stocks — shares judged to be cheap against their earnings or assets — have performed particularly well this week.

The environment is “more constructive for risky assets and for the reflation trade”, said Nadège Dufossé, head of cross-asset strategy at Luxembourg-based fund manager Candriam. “Value plays are really working very well in this first week.”

Fast-growing tech companies have also rallied.

“Tech stocks are picking up, indicating that the valuation gap between value and growth will take time to converge until such time as the economy gains more traction,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.

Fahad Kamal, chief investment officer at Kleinwort Hambros, warned that investors should be wary of possible risks, pointing to high equity valuations, the growing inflation risk and the “mountains of debt everywhere”.

“Are we all missing something? Are we in the latter stages of a really heady bull that’s about to crash?” he said.

Brent crude, the international oil benchmark, was up 0.8 per cent in early trading on Friday at $54.80 a barrel. Meanwhile gold, a haven asset, slipped 1.3 per cent on hopes for a sustained recovery in 2021, to $1,888 per troy ounce.

In the Asia-Pacific region, Japan’s Topix closed up 1.6 per cent at its highest point since early 2018 while Hong Kong’s Hang Seng climbed 1.2 per cent.


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