Stocks Extend Gains, Defying Rising Rates, as China Export Engine Supports Bulls

The Thursday Market Minute

  • Global stocks extend gains, taking European and Asia markets to the highest levels in a month, as risk appetite returns following a largely expected result from U.S. midterm elections.
  • China's U.S. trade surplus narrows to $31.78 billion in October, but still sits 22% higher on a year-to-date basis as export strength in the face of White House tariffs continues to surprise economists.
  • U.S 10-year Treasury bond yields test multi-year highs, but stocks appear more resilient to Fed rate path as the VIX slides 3.6 points to a one-month low of 16.36 points.
  • U.S. equity futures point to modest declines on Wall Street, with the Dow called 20 points lower ahead of earnings from Disney, Activision Blizzard, Rockwell Collins and Discovery Communications.

Market Snapshot

Global stocks extended gains Thursday as investors rushed back into equity markets around the world following midterm elections that appear unlikely to trigger major changes for either the domestic economy or the path of interest rates in the United States. 

With Wall Street largely anticipating an House win for the Democrats, the first since 2010, markets rallied hard following the final projections, helping the Dow Jones Industrial Average gain more than 540 points, or 2.1%, by the close of trading, the biggest post-midterm gain since 1982. That momentum carried over into Asia trading, where markets were bolstered by both the predicted U.S election result and stronger-than-expected export data from China, both of which supported the recent bullish sentiment that has driven stocks for much of the past week.

"Although a divided Congress will make it tougher for President Trump to pass new bills over the next two years, the market's initial reaction suggests that investors do not expect any reversal of previously enacted legislation," said FXTM's chief market strategist Hussein Sayed. "However, there's still a high chance to get some middle-class tax cuts as Democrat opposition to them will increase the probability of another four-year term for President Trump in 2020."

Early indications form U.S. equity futures, however, suggest the flow of trading should may stall at the opening bell on Wall Street, with contracts tied to the Dow suggesting a 5-point gain while those linked to the S&P 500 indicating an 3 point pullback for the broader benchmark. Nasdaq Composite futures were marked 30 points to the downside.

China's October exports grew 15.6% from the same period last year, the Customs office said Thursday, taking its trade surplus with global trading partners to just over $34 billion, most of which was recorded with the United States, where the year-to-date surplus rose 22% to a record $258.15 billion as companies rushed orders to the world's biggest economy ahead of an anticipated hike in tariffs next year.

The MSCI Asia ex-Japan index, the broadest measure of regional share prices, briefly touched a one-month high before paring gains later in the session as the dollar rebounded and oil prices recovered, and was marked 0.54% higher heading into the final hours of trading. Japan's Nikkei 225, meanwhile, rode a weaken yen to a 1.82% gain to close at 22,486.92 points.

European stocks were also testing one-month highs at the start of trading as the Stoxx 600 gained 0.25% by mid-day in Frankfurt as technology and financial stocks extended their recent advances even as the euro firmed to 1.1438 against the U.S. dollar. 

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, rebounded from a two-and-a-half week low Thursday to trade 0.15% higher at 96.23 while benchmark 10-year U.S. Treasury bond yields were marked at 3.23%, just a few basis points from the seven-and-a-half year high of 3.261% they reached in early October.

Global oil prices were also active, with investors citing the stronger-than-expected import data from China, which showed the world's biggest energy consumer taking in a record 9.61 million barrels per day last month, However, the data failed to offset figures from the Energy Information Administration that showed U.S. crude stockpiles rose 5.8 million barrels to just under 432 million and output hit a new all-time high of 11.6 million barrels per day.

Brent crude contracts for January delivery, the global benchmark, were seen 21 cents lower from their Wednesday close in New York and changing hands at $71.86 per barrel while WTI contracts for December, which are more tightly liked to U.S gas prices, were marked 8 cents lower at $61.59 per barrel.

 

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