Asia and Europe’s stock markets climbed on Thursday and bonds continued their rally as Democratic candidate Joe Biden inched closer to win the White House. Plus, the central bank in Britain became the latest one to introduce additional stimulus for reviving the economy. After victories in Wisconsin and Michigan, Biden is now expected to oust Republican President Donald Trump, but it is unlikely that Democrats will win the Senate. This prompted investors to bed on a policy gridlock that would stand in the way of greater regulation. As Europe’s markets opened, the Bank of England increased its bond-buying program by 150 billion pounds ($195.20 billion).
This caused the five-year bond yields in Italy to go below zero and FTSEEurofirst climbed by 0.8%. There was also a 2% increase in Asian stocks overnight, as they reached their highest level after February 2018. A 1.7% surge was also seen in Japan’s Nikkei to a nine-month high, China’s blue chips rose by 1.3% and South Korea also added 2.4% in hopes that a Biden White House would reduce the tariffs. A divided U.S. Congress, on the other hand, would potentially restrict the fiscal stimulus, but analysts believe that it could also offer some benefits.
They believe that a split Congress would prevent regulation and a hike in taxes. Tech companies like Google, Facebook, and Apple have all surged between 6% and 8%. Both Biden and Trump have paths to get 270 Electoral College votes, as states are tallying the mail-in ballots. Trump demanded recounts and filed lawsuits, while Biden remained confident of victory. The split Congress that appears likely to emerge will turn out to be the best thing for financial markets, with the Fed giving ample liquidity for supporting the financial markets and economy when required and no radical changes in policy.
As far as the bond market is concerned, it assumed that there would be less bond supply because the chances of debt-funded spending next year on infrastructure would be greatly reduced by a divided government. The reduced chances of a U.S. fiscal stimulus would increase the pressure on central banks globally for injecting liquidity in the world economy. The Bank of England has already added 150 billion pounds to their total target, as they are seeking to cushion the already struggling economy in Britain against a second lockdown for combating the coronavirus. Furthermore, there is a good chance that they will also call on the Federal Reserve.
Market analysts said that the Fed would have to take up their role of QE again for providing another bridge when hopefully a new government stimulus package would be agreed upon. This prospect caused the dollar to be restrained after it had a wild ride overnight. Sterling had had a bumpy ride on Wednesday, but it recovered slightly amidst problems of its own. There hasn’t been any sign of a breakthrough in Brexit negotiations and it had been reported that the Bank of England was considering a move towards negative interest rates.