Financial markets showed the diverging path of US and eurozone monetary policy on Wednesday with Wall Street breaking new ground and the dollar perched near a 14-year high, as German bond yields plumbed new record lows.
World stocks edged up and the Dow closed above 19,000 for the first time with investors expecting a growth boost under the policies of USPresident-elect Donald Trump and an imminent rate hike from the Federal Reserve that should be reinforced by minutes to be released later in the day, Reuters reported.
With European rate setters leaning the other way, reaffirming their commitment to easy policy, the euro has been pushed near one-year lows. The split has been most stark in bond markets with yields on two-year German paper hitting record lows, stretching the gap to US equivalents to an 11-year wide.
In Britain, sterling was a tad weaker at $1.240 before a budget update where hopes for fiscal stimulus have been lowered as the government has stressed its limited borrowing room.
“We do like policy divergence trades,” Rabobank strategist Lyn Graham-Taylor said.
“I think markets had been a bit euphoric in the wake of Trump and now they are coming around to the understanding that there is not going to be fiscal stimulus that is going to be good for everyone.”
European stocks were flat, struggling to match the exuberance in Asia, where stocks gained 0.7% to strike a one-week high, or the US, where the Dow hit a record high up 0.35%, the S&P 500 gained 0.22% and the Nasdaq 0.33%.
With Japan on holiday, Australia’s main index led the action in Asia with a rise of 1.35% to a one-month top helped by strength in bulk commodity prices.
China’s blue-chip CSI300 index advanced 0.5% to a near 11-month peak as the yuan touched its lowest in six years.
Eurozone yields were heading in the opposite direction and some solid growth data could not shake expectations for more monetary easing from the European Central Bank next month.
That saw yields on German two-year paper dive to record lows of minus 0.74%, which in turn expanded the yield premium offered by Treasuries to an 11-year peak.
The widening spread kept the euro pinned at $1.061, not far from last week’s one-year trough at $1.056. Against a basket of currencies, the dollar was up slightly at 101.12, very close to a 14-year peak.
