Traders work on the floor of the New York Stock Exchange (NYSE).
NEW YORK: World stocks rose on Wednesday, with Wall Street surging after the US midterm election a day earlier divided control of Congress, but the outcome, which casts doubt on further US tax cuts, hit the dollar and sent Treasury yields lower.
The Democrats looked headed for a gain of more than 30 seats in the House of Representatives, well beyond the 23 they needed to claim their first majority in eight years. With President Donald Trump’s Republican party holding on to its Senate majority, the results from Tuesday’s election were in line with expectations.
While gridlock in Washington could hamper Trump’s political and economic agenda, few expect a reversal of tax cuts and financial deregulation measures that have already been enacted.
That view helped all three Wall Street equity indices open stronger. The Dow Jones Industrial Average rose 213.04 points, or 0.83 per cent, to 25,848.05, the S&P 500 gained 27.55 points, or 1.00 per cent, to 2,783 and the Nasdaq Composite added 84.49 points, or 1.15 per cent, to 7,460.45.
“The good news in a way for markets is that there was an uncertainty that’s now been removed. We know where we stand for the next two years, and investors will focus back on the fundamentals, which are (company) earnings growth and the economy,” said Guy Miller, chief market strategist at Zurich Insurance Group.
Still, a split Congress could hamper Trump’s push for a further round of tax cuts and deregulation, measures that have turbocharged the US economy, stock markets and the dollar.
After volatile Asian trade, where stocks and the dollar swung on the Republicans’ fluctuating prospects, the pan-European STOXX 600 index rose 1.02 per cent and MSCI’s gauge of stocks across the globe gained 0.90 per cent.
It was the seventh straight day of gains in global shares.
Riskier European bonds such as those from Italy also were in demand, with yields falling 6-9 basis points.
The Fed is expected to signal this week that an interest rate rise remains on the agenda for December.
“Certainly it is now unlikely we will see additional fiscal stimulus in the near-term, that’s a profound change but there will be no repeal of what’s already in place,” Miller said.
That view pushed the dollar lower against a basket of currencies. The dollar index fell 0.48 per cent, with the euro up 0.32 per cent to $1.1462.
Ten-year US Treasury bond yields at one point fell to a low of 3.176 per cent as it became clear that more fiscal stimulus was unlikely.
An initial knee-jerk rise to 3.25 per cent came after early reports of a better-than-expected performance by the Republicans, but that move soon fizzled as results trickled in.
“Democrats winning the House is likely to mean slightly less fiscal stimulus going forward. The bond market may take that well because the Federal Reserve will have less work to do,” said Richard Buxton, head of UK equities at Merian Global Investors.
Benchmark 10-year notes last rose 6/32 in price to yield 3.193 per cent, from 3.215 per cent late on Tuesday.
Attention will focus on Trump’s hard line on trade tariffs, which he can impose without Congressional approval. That keeps alive worries about a trade war between China and the United States.
Chinese shares closed 0.7 per cent lower, while Hong Kong markets ended just above flat.
The dollar’s weakness lifted other currencies. The Japanese yen strengthened 0.11 per cent versus the greenback at 113.32 per dollar, while sterling was last at $1.314, up 0.33 per cent on the day.
Oil prices reversed their earlier decline after a report that Russia and Saudi Arabia were discussing output cuts in 2019.
US crude rose 0.69 per cent to $62.64 (Dh230) per barrel and Brent was last at $72.83, up 0.97 per cent on the day.