Tuesday 19:45 GMT
A robust session for US equities saw the Dow Jones Industrial Average climb to within a whisker of the 20,000 milestone as participants shrugged off geopolitical concerns and focused on the prospect of stronger growth under the presidency of Donald Trump.
The “risk-on” mood in the markets left US Treasury prices and gold lower while the yen — viewed by many as a “haven currency” — came under additional pressure after the Bank of Japan left its policy stance unchanged.
As traders again wonder whether today will be the day the Dow Jones Industrial Average — a price weighted measure of 30 US blue-chips — hits 20,000 for the first time, they are also eyeing an equity volatility barometer that has dropped to its lowest level in four months.
The closely watched CBOE Vix index, an option-based measure of future market moves known as Wall Street’s fear gauge, is down 0.8 per cent at 11.62, in line for its lowest close since mid-August and a fourth straight day of decline.
The Vix, which generally falls when the market is more bullish, has almost halved from a recent peak hit just a few days ahead of the US presidential election in November. Vix levels below 12 often generate concern among the market’s more cynical observers that investors have become too sanguine, leaving stocks vulnerable to a sell-off.
However, bulls may counter that the low Vix means the cost of protecting a long stock portfolio is cheaper and that this may further encourage a traditional end-of-year rally.
In Tokyo, the Nikkei 225 rose 0.5 per cent to a one-year high, supported by a weaker tone for the yen after the conclusion of a two-day policy meeting of the Bank of Japan.
“The decision to leave monetary policy unchanged was in line with consensus expectations — although there had been some speculation in the run-up to the meeting that the BoJ may lift the yield target,” said Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi UFJ.
“By leaving the yield target unchanged, it may help to ease some of the upward pressure on yields in the near-term, and continue to support the sharp widening of yield spreads between Japan and overseas, which has weighed heavily on the yen in recent months.”
The yield on the 10-year Japanese government bond ended flat at 0.07 per cent. The dollar was up 0.6 per cent against the yen at ¥117.77 — not far off a 10-month intraday high of ¥118.66 hit last week after the Federal Reserve adopted a more hawkish policy stance than had been expected.
Wall Street hogged the limelight as the Dow rose as high as 19,987.63 in early trading — a record intraday peak — before easing back to 19,952 by mid-afternoon in New York, still up 0.4 per cent on the day.
The broader S&P 500 equity index was up 0.2 per cent at 2,267 — off an earlier high of 2,272.56 but still in sight of recent all-time peaks.
The S&P has now risen some 6 per cent since Mr Trump’s presidential election victory, largely based on optimism about his proposed plans for fiscal stimulus, infrastructure spending and lighter regulation.
“By the second quarter of 2017, we expect President Trump and Congress to agree on a fiscal stimulus worth at least 2 per cent of GDP per year,” said Andrew Kenningham at Capital Economics.
“Although this will take the form of corporate and personal income tax cuts, it should boost US GDP growth to around 2.7 per cent next year, which is well above the consensus forecast of 2.2 per cent.
“The fiscal boost will also help to lift both headline and core inflation to nearly 3 per cent by year-end, which is much higher than the median forecast of Federal Reserve members and the consensus among economists.”
The Xetra Dax in Frankfurt rose 0.3 per cent to its highest finish since August last year while the FTSE 100 in London added 0.4 per cent to close at a two-month peak.
Further gains for Italian banking stocks — after Rome sought parliamentary approval to borrow €20bn to underwrite the stability of the sector — helped the FTSE MIB index in Milan jump 1.5 per cent to its highest since January.
In the Asia-Pacific region, Hong Kong’s Hang Seng lost 0.5 per cent, while in mainland China the Shanghai Composite also slipped 0.5 per cent as traders continued to express concern that Beijing’s attempts to damp speculation in property and tighten regulation of some financial products would curtail retail investors’ bullish bias.
The euro took a step closer towards parity with the US currency as it fell a further 0.1 per cent to €1.0387, after touching a fresh 14-year low of $1.0350.
Sterling was down 0.3 per cent at $1.2360 as the markets gave short shrift to UK prime minister Theresa May’s first explicit comments that she would seek a transition deal to smooth Britain’s EU exit.
The Turkish lira was choppy as markets responded to a decision by the country’s central bank to leave interest rates unchanged. The US currency was down 0.1 per cent to TL3.5301.
Government bond prices are faltering, pushing yields back towards recent highs, which came after investors piled into the “Trumpflation trade”.
The yield on the 10-year US Treasury — which moves inversely to its price — rose 2 basis points to 2.56 per cent, in sight of last year’s two-year high of 2.64 per cent. The 10-year German Bund yield rose 2bp to 0.27 per cent.
The rebound for the dollar and Treasury yields helped kill off a modest two-day rally for gold, leaving the metal down $8 at $1,130 an ounce.
Oil prices drifted higher, with support coming from the prospect of output cuts by major producers.
Brent, the international crude benchmark, was up 0.6 per cent at $55.27 a barrel while US West Texas Intermediate was 0.2 per cent higher at $52.22.
Additional reporting by Peter Wells in Hong Kong
For market updates and comment follow us on Twitter @FTMarkets