Global shares reached new heights on Thursday following Joe Biden’s inauguration, as investors welcome the 46th US president’s promise of $1.9tn in stimulus spending and the jettisoning of isolationist policies pursued by his predecessor.
On Wall Street the blue-chip S&P 500 stock index inched slightly higher, while the tech-heavy Nasdaq Composite climbed 0.6 per cent following Wednesday’s record highs. The FTSE All-World index of global shares rose as much as 0.4 per cent to a fresh peak before slipping back to finish 0.3 per cent higher for the day.
Following his inauguration, Mr Biden swiftly overturned some of his predecessor Donald Trump’s actions, signing orders to rejoin the Paris climate accord, halting the US withdrawal from the World Health Organization and scrapping a ban on entry to the country by citizens from some Muslim-majority nations.
“Markets are celebrating the idea of out with the old,” said John Roe, head of multi-asset funds at Legal & General Investment Management. “The concept of a United States that isolates itself and does not care about issues that matter globally is being reversed very rapidly and that is good for international co-operation, international law and international trade.”
The rise in the S&P 500 on Wednesday was the biggest on any presidential inauguration day since Ronald Reagan was sworn into office for the second time in 1985.
MSCI’s Emerging Markets index also reached a record high after Mr Biden’s inauguration. This gauge has risen more than 8 per cent during January, after similar gains in November and December, as investors bet on a return to international norms and further weakness in the dollar that would make it easier for EM borrowers to service their debts.
The US dollar index, which measures the greenback against a basket of its peers, slipped 0.5 per cent. Despite a rise in January, it is still down 5 per cent in the past six months, as investors bought riskier currencies.
“When investors are concerned about global growth, they go to the safety of the US government bond market and the dollar,” said Remi Olu-Pitan, a multi-asset fund manager at Schroders. “When people are feeling more optimistic about the world they buy the [Brazilian] real or the [South African] rand.”
The yield on the 10-year US Treasury bond, which crossed 1 per cent for the first time since March earlier this month, edged up 0.02 percentage points to 1.10 per cent.
Charlotte Harrington, multi-asset fund manager at Fidelity, said EM assets could falter if the Federal Reserve signalled that it might reduce its $120bn of monthly bond purchases, which have kept financial markets liquid throughout the pandemic and prompted investors to make riskier trades.
“At some point we move into a world where vaccines take hold, Covid is less of a near-term issue and the Fed will be increasingly talking about tapering its purchases,” Ms Harrington said. “The way this is communicated will be the biggest risk to the emerging market call.”
In Europe, the benchmark Stoxx 600 index closed flat and London’s FTSE 100 lost 0.4 per cent.
Additional reporting by Adam Samson in London
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