Global equities edged higher this week as the market’s historic rally extended to the first week of December. Despite a notable slowdown in hiring that was revealed in the November jobs report, major indexes closed at record highs and Treasury yields rose, reflecting expectations for additional fiscal stimulus. Mitch McConnell, the most senior Republican in the US Senate, said that an agreement was “within reach”, two days after a bipartisan group of senators unveiled a $908bn Coronavirus relief bill.
Shares in Europe paused after last month’s strong rally. In local currency terms, the pan-European STOXX Europe 600 Index ended the week with a modest 0.21% gain. Major European indexes were mixed: France’s CAC 40 ticked up 0.20%, Germany’s DAX Index fell 0.28%, and Italy’s FTSE MIB slipped 0.78%. The UK’s FTSE 100 Index, however, gained 2.87%, reaching nine-month highs on news that the UK had approved the coronavirus vaccine developed by Pfizer and BioNTech.
US Equities reached further into record territory, with all of the major indexes touching new intraday highs by Friday. Energy shares bounced back after OPEC and other major oil producers reached an agreement to ease output cuts more gradually next year than previously planned, while utilities stocks lagged. On Monday, the Dow Jones Industrial Average closed out November with its best monthly performance since 1987, while the small-cap Russell 2000 Index registered its best monthly gain since its inception in 1978.
Chinese stocks posted their third straight weekly gain, aided by solid economic data. The large-cap CSI 300 Index rose 1.7%, and the benchmark Shanghai Composite Index gained 1.1%, according to Reuters. The yield on China’s 10-year sovereign bond edged lower 3 basis points to end at 3.33%. In currency markets, the renminbi appreciated by 0.5% against the U.S. dollar to CNY 6.5342.
Japanese stocks posted mixed results for the week. The Nikkei 225 Stock Average advanced 0.4% (107 points) and closed at 26,751.24. For the year-to-date period, the benchmark is ahead 13.1%. The large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, recorded modest weekly declines. The yen was little changed versus the U.S. dollar and traded near JPY 104 on Friday.
With the rally in riskier assets, demand for safe-haven government bonds waned this week. Furthermore, investors are weighing up the potential of inflation rising next year if US stimulus spending measures are approved. The prospect of higher inflation erodes the purchasing power of future bond coupons, hence the negative impact on bonds. This is particularly the case for longer-dated government bonds, as the US 10-year treasury yield, which moves inversely to bond prices, rose 9 basis points to 0.91%. 30-year US treasury yields also rose by 11 basis points, equating to a 1.33% loss. 10-year equivalent UK and German government bonds also lagged this week, with yields rising by 3 and 5 basis points respectively.
Industrial commodities reacted extremely positively to the Chinese industrial data this week. Iron ore prices boomed to seven-year highs, up 13.2%, whilst copper also rallied higher by 3.46%. Oil prices also received a boost, as Russia and OPEC agreed to increase supply less than expected. The agreement is to boost output by 500,000 barrels a day from next year, only a quarter of what had been agreed as members are cautious over fears of oversupply. The Brent Crude oil price reached $49.39 a barrel; a 9-month high.
Important economic data being released include the small business optimism index on Tuesday, inflation on Thursday, and consumer sentiment on Friday.
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