An agreement to form a German coalition government lifted the euro to a four-year high against the yen yesterday and helped buoy stocks around the world, already well bid on signs of more central bank liquidity.
The long-awaited coalition pact between German Chancellor Angela Merkel’s conservatives and the center-left Social Democrats was sealed early yesterday, paving the way for a government to be sworn in by the end of the year.
US stocks were slightly higher, with investors finding few reasons to buy before today’s Thanksgiving holiday and with major indexes near historic highs.
“There won’t be any news that will move stocks but there is a general bias in equity markets to move higher,” said John Rutledge, chief investment strategist for Safanad, a New York-based private investment firm.
“There is not much action,” Rutledge said. “People are putting their turkeys into the oven.”
The Dow Jones industrial average was up 31.25 points, or 0.19 per cent, at 16,104.05. The Standard & Poor’s 500 Index was up 5.23 points, or 0.29 per cent, at 1,807.98. The Nasdaq Composite Index was up 18.49 points, or 0.46 per cent, at 4,036.24.
Details of the new German government’s policies were sparse but included raising the minimum wage and increasing pensions, which should help boost activity in Europe’s largest economy.
The deal must still be voted on by SPD members, but ending the political stalemate has amplified the positive tone in equity markets set by expectations the super-loose monetary policies of major central banks would continue into next year.
The euro peaked at 138.80 yen, its best level since June 2009, and came close to a one-month high of $1.3612 against the dollar.
The MSCI world equity index was up 0.2 per cent on the day to just over 400 points, close to a level it last reached at the end of 2007.
Europe’s main stock markets all edged higher on the news of Germany’s grand coalition, helped by solid earnings from Belgian discount grocer Colruyt.
The pan-European FTSEurofirst 300 was up 0.7 per cent , taking its year-to-date gains to around 14.4 per cent and keeping it on track for its best year since 2009. Wall Street has soared this year, largely on expectations of continued stimulus from the Federal Reserve.
Both the Dow and S&P 500 have risen more than 20 per cent in 2013, hitting a series of all-time highs, while the Nasdaq on Tuesday closed above 4,000 for the first time since 2000.
Signs that the European Central Bank could move early to implement fresh measures to support the struggling euro zone economy and tackle deflationary pressures were also growing, though inflation data tomorrow is expected to show a small pick-up.
German newspaper Sueddeutsche Zeitung reported yesterday that the central bank was considering a new long-term liquidity operation, which would be available only to banks that agreed to use the funding to lend to businesses.
The report follows a string of comments by ECB policymakers in the past week that they stood ready to act. However, many see next week’s ECB policy meeting as coming too soon after the bank earlier this month cut rates to a record low.