Wall Street stocks rose sharply yesterday, bouncing from a dramatic overnight sell-off, while the Mexican peso was battered as investors reacted to Donald Trump’s surprise win in the US presidential election.
After sharp declines in US stock futures overnight, equity investor panic eased but bond investors pushed up Treasury yields as they worried Trump’s policies would ultimately weaken the dollar and hike inflation.
US long-dated Treasury yields rose to 10-month highs, bolstered by expectations that Trump will enforce protectionist trade policies that will weaken the dollar and boost inflation.
US 30-year bond yields, which move inversely to prices, gained 22 basis points in their biggest jump since August 2011. Benchmark US 10-year note yields climbed to their highest since January.
The US dollar hit its highest level against the Japanese yen in nearly four months. It gained support from the US equity turnaround as well as from the yield spreads, said Kathy Lien, managing director at BK Asset Management in New York.
The Mexican peso recouped some losses after falling to a record low. The currency has been vulnerable to Trump’s threats to rip up a free trade agreement with Mexico and to tax money sent home by migrants to pay for building a border wall.
The three major US stock indexes rose as investors piled in to financial and healthcare stocks on hopes for less onerous regulations in those sectors than they had feared from a Hillary Clinton presidency.
“If you take Trump’s policies at face value, they are favorable for economic growth and inflation,” said David Lefkowitz, senior equity strategist at UBS Wealth Management Americas in New York.
He cited Trump’s promises for lower taxes, infrastructure and defense spending, less regulation and higher trade barriers, as long as those barriers do not dent growth too much.
The Dow Jones industrial average was up 214.45 points, or 1.17 per cent, to 18,547.19, the S&P 500 had gained 18.98 points, or 0.89 per cent, to 2,158.54 and the Nasdaq Composite had added 30.75 points, or 0.59 per cent, to 5,224.24.
European stocks closed up 1.6 per cent . MSCI’s broadest index of Asia-Pacific stocks outside Japan had ended down 2.3 per cent and Tokyo’s Nikkei closed down 5.4 per cent.
Oil prices recovered with Brent crude up 0.8 per cent at $46.40 a barrel and US crude up 0.9 per cent to $45.39.