Published : 4 weeks ago, on 08/11/2024

By Dhara Ranasinghe and Koh Gui Qing

NEW YORK/LONDON (Reuters) -Wall Street shares hit record highs for a third consecutive day while Treasury yields retreated on Friday, as investors again cheered Donald Trump’s decisive victory, while China kicked off a fresh round of fiscal support for its flagging economy.

A day after the Federal Reserve delivered a quarter-point rate cut, as anticipated, focus turned back to the fallout of Tuesday’s U.S. election and headlines out of Beijing.

The offshore yuan weakened, while U.S.-listed shares of Chinese firms and China exposed-sectors in Europe fell in a sign of investor disappointment with China’s stimulus news that did not directly inject money into the struggling economy.

Investors on Wall Street shrugged off any frustration about the lack of a Chinese fiscal bazooka and pushed major U.S. stock indices to new record highs. The S&P 500 index added 0.3%, the Dow Jones Industrial Average climbed 0.7%, and the Nasdaq Composite reversed earlier gains to dip 0.1%. The S&P 500 and the Dow are set for their best week in a year.

Shares of electric car maker Tesla, whose Chief Executive Elon Musk became one of Trump’s biggest supporters in the last leg of his reelection campaign, shot up 5.6%, catapulting its market capitalization to $1 trillion for the first time since 2022.

Nicholas Colas, a co-founder of DataTrek Research LLC, cited several reasons for buying U.S. stocks. “The Fed is cutting rates, and the U.S. economy is still strong,” Colas said.

Moreover, the U.S. Republican party won the White House and the Senate this week, and may win the House as well – a similar scenario to the November 2016 election outcome, Colas said, that preceded the S&P 500’s 22% gain in 2017.U.S. stocks’ modest gains on Friday masked a generally strong week, as Trump’s election win stoked expectations of lighter regulation and tax cuts that could further boost the U.S. economy.

Outside the United States, however, the mood was more subdued. A MSCI index for world stocks was flat, but close to a record high, while the pan-European STOXX 600 lost 0.6%.

“What you are going to get because of the clean sweep – is a mandate to improve the U.S. economy. So, taxes will come down, bureaucracy will ease and regulation will become lighter,” said Guy Miller, chief markets strategist at Zurich Insurance Group.

“Between now and year-end, there is a tailwind for U.S. stocks. The U.S. market has potential.”

Germany’s DAX stock index fell 0.8% a day after posting its best daily performance of 2024 so far, helped by expectations that Germany could scrap its debt brake.

CHINA DISAPPOINTS

China unveiled a 10 trillion yuan ($1.40 trillion) debt package to ease local government financing strains and stabilize flagging economic growth.

Finance Minister Lan Fo’an said more stimulus was coming, with some analysts saying Beijing may not want to fire all its financial weapons before Trump takes over officially in January.

Mainland blue chips fell 1%, a day after rising 3%. Hong Kong’s Hang Seng <.HSI> also slid in a sign of some caution ahead of the announcement.

The offshore Chinese yuan fell 0.5% to 7.1785 per dollar. China-exposed European luxury and mining stocks each fell over 3%.

“Unless there’s more to come later this evening, today’s fiscal announcement is another disappointment for those expecting substantial stimulus,” said Capital Economics chief Asia economist Mark Williams.

FED CUTS

U.S. Treasury yields fell after Fed Chair Jerome Powell on Thursday signaled continued, patient policy easing.

The Fed cut rates after a quarter-point cut from the Bank of England and a large half-point cut by Sweden also on Thursday.

Ten-year Treasury yields fell 8.3 basis points to 4.343%, having reversed sharp rises seen following the U.S. election result.

Powell said Tuesday’s election result would have no “near-term” impact on U.S. monetary policy.

The Fed pointed to a more uncertain economic outlook and inflation remaining elevated,” said Mahmood Pradhan, head of global macroeconomics at the Amundi Investment Institute.

“Together with a likely change in policy direction under the new administration, we expect a more uncertain and measured pace of easing next year.”

The dollar index, which measures the currency against six major peers, rose to 104.86, following a 0.7% drop on Thursday, its biggest since Aug. 23. On Wednesday, it soared 1.53%, the most in over two years, a sign of increased volatility as investors assess the new Trump administration’s policies.

The euro and sterling softened against the dollar, while the dollar slipped 0.2% to 152.63 yen.

Bitcoin was a touch firmer just above $76,357, following a nearly 10% surge this week, hitting a record peak of $76,980 on Thursday. Trump has vowed to make the United States “the crypto capital of the planet.”

After a rollercoaster week, gold fell 0.8% to $2,686.19. It slumped more than 3% on Wednesday, but bounced 1.8% overnight. Last week it surged to an all-time high of $2,790.15.

Brent crude oil futures pared losses during London trade and were last down 2.7% at $73.59, U.S. West Texas Intermediate crude fell 3% to $70.18.

(Reporting by Dhara Ranasinghe in London and Kevin Buckland in Tokyo; Editing by Kevin Liffey, Philippa Fletcher and Richard Chang)