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Capital Markets

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Banks

Financial system more vulnerable after Trump victory, says BoE

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Currencies

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Categorized | Currencies, Equities

European stocks climb in Thanksgiving week


Posted on November 23, 2016

European bourses are higher, tracking another mostly positive performance in Asia, as fresh records on Wall Street continue to buoy global investor sentiment.

The dollar and benchmark Treasury yields are steady near recent highs, while industrial commodities struggle to extend their rallies.

Trading is likely to be muted for much of the session. Japan’s markets were shut for a holiday and many US-based traders may be travelling for the Thanksgiving break.

Wall Street is closed on Thursday and will be open for just half a day on Friday.

But US investors look set to tuck into their turkey in bullish mood as futures suggest the S&P 500 will add half point to 2,203.5, leaving the benchmark index in line for another record close.

US stocks have rallied hard in the wake of Donald Trump’s shock victory in the country’s presidential election, with many analysts citing hopes that his plans for massive infrastructure spending and a lighter regulatory touch will boost the economy and corporate earnings.

The feelgood mood is spreading across developed markets. Germany’s Dax index is up 0.1 per cent, flirting with its best level of the year, and the UK’s FTSE 100 is gaining 0.4 per cent.

UK-focused investors will be keeping an eye on the government’s Autumn Statement, due to begin on Wednesday at 12:30 GMT, the first set piece fiscal policy event since the summer’s Brexit vote.

In the meantime the pound is down 012 per cent to $1.2406 and 10-year gilt yields, which move opposite to the bond price, are adding 1 basis point to 1.38 per cent.

Equivalent maturity US Treasury and German Bund yields are easing 1bp to 2.31 per cent and up 1bp to 0.23 per cent. At the more policy-sensitive end of the yield curve, US 2-years are steady at 1.10 per cent while German 2-years are minus 0.74 per cent.

This 1.84 basis point difference — the widest in 11-years, according to Reuters — reflects expectations that the US Federal Reserve will raise interest rates next month but that its eurozone counterpart remains in easing mode.

The expanding yield differential has been supporting the greenback of late, pushing the dollar index (DXY) to a 13-year high of 101.48 at the end of last week. But the buck’s rally looks to be fading on Wednesday, with the DXY slipping 0.1 per cent to 100.96.

The euro is barely changed at $1.0624 and the Japanese yen is 0.1 per cent firmer at ¥111.05, the buying of the currency “haven” perhaps reflecting trader caution going into the US break.

The Australian dollar is among the bigger movers, up 0.5 per cent at $0.7440. The currency shrugged off data showing the value of construction work done during the September quarter had fallen at its fastest quarterly pace in 16 years, and instead rallied as a survey of Chinese business conditions showed continued improvement in November.

Australia’s S&P/ASX 200 also benefited from China economic optimism, adding 1.3 per cent, led by mining stocks after iron-ore futures jumped 8 per cent.

Hong Kong’s Hang Seng was up 0.1 per cent, but mainland China benchmarks bucked the regional trend, with the Shanghai Composite slipping 0.2 per cent and the technology-focused Shenzhen Composite off 0.4 per cent.

In oil, the rally of recent sessions is cooling. Brent crude saw strong gains at the start of the week on renewed hopes Opec members will agree to a supply cut at a meeting later this month. Gains were tempered in New York on Tuesday, and today Brent is flat at $49.13 a barrel.