US stock markets hit new records as Joe Biden became the 46th US president, propelled by optimism that the administration’s $1.9tn stimulus spending plan could help insulate the global economy from the damage wrought by coronavirus.
The benchmark S&P 500 index gained 1.1 per cent in early trades to reach a fresh peak, having closed higher on Tuesday after Treasury secretary nominee Janet Yellen urged Congress to “act big” on stimulus.
The technology-focused Nasdaq Composite rose 1.6 per cent to a new record, boosted by a 15 per cent rise for Netflix after the streaming service passed 200m subscribers in its latest earnings update and promised share buybacks.
“Investors see a Goldilocks scenario for stock markets,” said Silvia Dall’Angelo, global economist at UK fund manager Federated Hermes, citing a popular term for moderate economic growth and inflation.
While “massive” US stimulus spending was expected to feed faster price rises this year, Ms Dall’Angelo added that the US Federal Reserve was unlikely to respond with an interest rate increase that would knock companies’ earnings prospects.
“Markets are relying on monetary policy to remain quite accommodative,” she said, noting comments last week by Fed governor Jay Powell that the central bank was unlikely to respond to any economic recovery “too early”.
In Europe, the benchmark Stoxx 600 equity index closed 0.7 per cent higher, while Germany’s Xetra Dax rose 0.8 per cent and the UK’s FTSE 100 added 0.4 per cent.
“The US stimulus will increase global demand, which will benefit European companies,” said Francesco Sandrini, a multi-asset fund manager at Amundi.
“But we think European equities are set for a pause,” he added, as investors assess the “further economic hits from lockdowns” against the pace of vaccination programmes that has so far been sluggish in some countries.
German chancellor Angela Merkel and state leaders agreed on Tuesday evening to extend the nation’s lockdown until mid-February. This came hours after the UK recorded its largest daily total of deaths from coronavirus, with 1,610 people dying within 28 days of a positive test.
In currencies, sterling rose to its highest in eight months against the euro, gaining 0.4 per cent to purchase just under €1.13, after stronger than expected inflation data for December signalled the UK’s economic slowdown may be less severe than feared.
Growing anticipation of higher inflation has driven a reordering in US markets since the Democrats won control of the Senate earlier this month. A measure of inflation expectations derived from the price of inflation-protected debt instruments is running at more than 2 per cent.
Gold, commonly used as a hedge against inflation eroding the value of cash and government debt, gained 1.4 per cent to $1,864 an ounce.
US 10-year government bonds, which have sold off in recent weeks as inflation expectations have risen, held steady ahead of Mr Biden’s inauguration, yielding slightly less than 1.10 per cent.
In Asia, Hong Kong’s Hang Seng index closed 1.1 per cent higher, while mainland China benchmark the CSI 300 and South Korea’s Kospi both gained 0.7 per cent.