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US stock futures advance points to fourth day of gains

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Futures for big US technology stocks advanced in Asian trading on Thursday, as investors awaited results from some of the final battleground states that will decide the US election.

Nasdaq 100 futures climbed 1.6 per cent while those for the S&P 500 rose 0.9 per cent, a day after US stocks posted their best ever daily performance after an election. Treasuries also continued to strengthen, with the yield on the 10-year note falling 0.03 percentage points to 0.73 per cent.

Investors in recent weeks had bet on a reflation trade — the idea that a big Democratic victory would lead to substantial stimulus that would fuel growth. But that trade started to reverse as Joe Biden won important battleground states including Wisconsin and Michigan and as the Senate remained in the balance with several races too close to call.

Investors returned to the top-performing parts of the market — namely technology — on Wednesday as they pencilled in lower stimulus spending and US growth on the prospect of a divided government.

Line chart of Performance since start of trading on Wednesday evening (%) showing US stock futures point to fourth day of gains

“You go back to the old playbook of growth stocks that will outperform,” said Jurrien Timmer, director of global macro at Fidelity. “The market is assuming it will not be contested or we would be on the back heels.”

The global stocks surge comes despite mounting concerns that Donald Trump will seek to undermine the results when they are finalised. The president’s campaign has already filed multiple lawsuits in critical swing states, including Pennsylvania and Georgia. Mr Trump has also called for a recount in Wisconsin.

Eric Stein, chief investment officer for fixed income at Eaton Vance, said investors were “looking through” the period of uncertainty.

“The market appears to be saying it could get messy, but it isn’t something that will be as material of a risk as people were worried about before,” he added.

Measures of volatility in both equity and Treasury markets collapsed on Wednesday as the election results came into view. Results out of Nevada on Thursday could prove the tipping point, with the state due to report a fuller tally by noon in New York.

Asian markets gained, with Hong Kong’s Hang Seng index jumping 2.7 per cent as the odds of victory for Mr Trump — who has targeted the financial hub’s top officials with sanctions this year and threatened more severe action — appeared to narrow.

Japan’s Nikkei 225 climbed as much as 1.3 per cent, taking the benchmark above the 24,000 level for the first time since January. China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks rose 1.2 per cent and South Korea’s tech-heavy Kospi benchmark gained 1.7 per cent.

China’s offshore renminbi remained volatile on Thursday as traders struggled to digest uncertainty around the US election.

The offshore version of the Chinese currency, which is typically subject to larger swings than its closely controlled onshore counterpart, reached its strongest level in over two years early on Thursday morning in Asia.

But it subsequently weakened by almost 0.4 per cent to 6.6473 per dollar.

The renminbi, which has strengthened this year on the back of China’s economic recovery from the pandemic, is particularly sensitive to the events unfolding in the US presidential election given tensions between Beijing and Washington.

On Tuesday, implied volatility for the offshore renminbi, a measure of hedging activity, jumped to its highest level on record. On election day, it weakened markedly before later strengthening.

Additional reporting by Hudson Lockett and Thomas Hale