The German stock exchange in Frankfurt. Germany’s Dax index is rising on boosted hopes of a global economic recovery
Germany’s Dax index added 0.9 per cent on increased hopes of a global economic recovery © AFP/Getty Images

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Global stock markets rallied while the dollar and US government bond prices fell after encouraging Chinese factory data raised further hopes for the global economic recovery.

The S&P 500 index rose 1.1 per cent to a record high, building on a global rally spurred by coronavirus vaccines that pushed the US blue-chip index up almost 11 per cent in November. The technology focused Nasdaq Composite also hit an all-time high, closing with a 1.3 per cent gain.

Treasuries and the dollar weakened, meanwhile, as the upbeat mood put haven assets out of favour.

The yield on 10-year Treasury notes, which moves inversely to the price of the securities, rose 0.08 percentage points to 0.92 per cent. The yield on 20- and 30-year Treasuries also climbed, while the dollar, as measured against a basket of other big currencies, slipped 0.9 per cent and brought the euro to its strongest level since mid-2018.

The move in Treasuries likely caught some hedge funds by surprise. Leveraged funds had unwound a significant portion of their short bets on longer-dated Treasury futures in the week to November 24, according to data published by the Commodity Futures Trading Commission on Monday. Short positions are a means to profit if the price of the Treasury futures contract falls in value.

Line chart of Treasury yields (%) showing Sell-off pushes yield on 10-year Treasury back above 0.9%

The resumption of the bullish tone in equity markets came after a survey run by Chinese publication Caixin found industrial activity in the world’s second-largest economy was accelerating at its fastest pace in a decade in November.

“This validates the idea that when you get the pandemic under control and you really manage to keep it low, economies can catch up extremely rapidly,” said Samy Chaar, chief economist at Lombard Odier.

In Europe, the Stoxx Europe 600 rose 0.7 per cent, having gained almost 14 per cent in November, in a record month for the regional equity benchmark. The UK’s FTSE 100, which just achieved its best month since 1989, climbed 1.9 per cent. Germany’s Dax added 0.7 per cent.

The FTSE 100 has been has been one of the worst-performing big stock markets during 2020, falling almost 16 per cent.

But the UK large-cap index has a large concentration of commodities and metals producers whose fortunes are pinned to Chinese demand. Value stocks — unloved companies in economically sensitive sectors that often do well as recessions come to an end — also make up more than a third of the index, according to Goldman Sachs.

“We believe the key factors driving FTSE 100 remain commodity prices and value versus growth,” Goldman’s strategists wrote in a research note.

On Tuesday the price of copper, the world’s most important industrial metal, hit $7,719 a tonne, its highest point since March 2013.

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The Cboe Vix, which measures investors’ expectations of share price volatility on the S&P 500, rose marginally to 20.8.

Last month was among the strongest on record for bourses across the globe, but investors should not expect gains “in a straight line from here”, warned Yuko Takano, equities portfolio manager at Newton Investment Management.

Even if Covid-19 vaccines are approved swiftly, governments still face the task of administering the jabs, said Ms Takano, and “it is winter, it’s getting cold, [so] we’re going to see an ugly next wave of the virus hitting a lot of developed countries”.

Financial markets “were going to still be working under a lot of uncertainty” and would face significant volatility “for the next month of the next quarter”, she added.

Additional reporting by Matthew Rocco and Eric Platt in New York

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