Global stock markets were on track for their best week since August on Friday, bolstered by sentiment following Donald Trump’s decisive victory in the U.S. election, while China initiated a new round of fiscal support for its struggling economy.
The day after the U.S. Federal Reserve implemented a quarter-point rate cut, attention shifted back to the implications of Tuesday’s U.S. election results and news from Beijing. The offshore yuan weakened, and shares of U.S.-listed Chinese companies, as well as China-exposed sectors in Europe, declined, indicating investor disappointment with China’s stimulus announcements. U.S. stock futures edged lower, and Europe’s STOXX index fell by 0.7%. In contrast, Japan’s Nikkei closed 0.3% higher.
Despite these modest movements, it had been a generally strong week for stocks, especially in Wall Street, as Trump’s election win raised expectations for lighter regulations and tax cuts that could further stimulate the U.S. economy. The S&P 500 stock index rose over 4% this week and was poised for its best performance in over a year.
Meanwhile, MSCI’s world stock index was set for its best week since August, with a gain of just over 3%, and was close to record highs. Guy Miller, chief markets strategist at Zurich Insurance Group, commented, “What you are going to get from the clean sweep is a mandate to improve the U.S. economy. Taxes will come down, bureaucracy will ease, and regulation will become lighter.
Between now and year-end, there is a tailwind for U.S. stocks. The U.S. market has potential.” In contrast, Germany’s DAX stock index fell the day after posting its best daily performance of 2024, bolstered by hopes that Germany could abandon its debt brake.
China’s Disappointment
China announced a debt package of 10 trillion yuan (approximately $1.40 trillion) aimed at alleviating local government financing pressures and stabilizing weakening economic growth. Finance Minister Lan Foan indicated that more stimulus measures would follow.
Some analysts suggest that Beijing may be cautious about deploying all of its financial tools before Trump officially takes office in January. Mainland blue-chip stocks, which had risen 3% on Thursday, dropped 1% on Friday, along with Hong Kong’s Hang Seng index, which also experienced declines, reflecting investor caution leading up to the announcement. The offshore Chinese yuan was 0.3% weaker at 7.1730 per dollar.
European luxury and mining stocks, exposed to China, each fell over 3%. Mark Williams, chief Asia economist at Capital Economics, remarked, “Unless there’s more to come later this evening, today’s fiscal announcement is another disappointment for those expecting substantial stimulus.”
Federal Reserve Rate Cuts
U.S. Treasury yields fell following comments from Fed Chair Jerome Powell on Thursday, indicating a patient approach to ongoing policy easing. This rate cut followed a quarter-point reduction by the Bank of England and a significant half-point cut by Sweden on the same day.
Ten-year Treasury yields decreased by 3 basis points to 4.31%, reversing sharp increases seen after the U.S. election results. Powell stated that Tuesday’s election outcome would not have a “near-term” impact on U.S. monetary policy. Mahmood Pradhan, head of global macroeconomics at Amundi Investment Institute, noted, “The Fed pointed to a more uncertain economic outlook and elevated inflation. Combined with a likely change in policy direction under the new administration, we expect a more cautious and measured pace of easing next year.”
The dollar index, which tracks the currency against six major peers, dipped to 104.36, following a 0.7% drop on Thursday—its largest decrease since August 23. Earlier in the week, the dollar had surged by 1.53%, the most significant rise in over two years, reflecting increased volatility as investors evaluated the potential effects of the new Trump administration’s policies.
The euro and sterling dipped slightly against the dollar, and the dollar fell almost 0.5% to 152.31 yen. Bitcoin experienced a slight increase, trading just above $76,000, following a nearly 10% surge this week, peaking at a record $76,980 on Thursday. Trump has pledged to establish the United States as “the crypto capital of the planet.”
After a tumultuous week, gold fell 0.6% to $2,691. It had previously dropped more than 3% on Wednesday but bounced back 1.8% overnight. Last week, gold hit an all-time high of $2,790.15. Brent crude oil futures trimmed their losses during London trading, last reported down 1% at $74.86, while U.S. West Texas Intermediate crude fell 1.2% to $71.45.