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Dow hits 20,000 as Trump trade reignites

Wednesday 14:35 GMT

Overview

Major global stock markets are rallying as the Dow Jones Industrial Average breaches 20,000 amid revived hopes for faster US growth.

Benchmark sovereign bonds yields are rising, but oil and gold prices are moving lower despite a weaker dollar.

Hot topic

The “Trump trade” is back on and it has the Dow through 20,000 for the first time?

The average, though a price-weighted gauge of just 30 blue-chip stocks, carries great resonance for the investing public.

After a strong rally following Donald Trump’s election victory in November, it came within less than 1 point of breaching 20,000 on January 6, but has stalled in the past few weeks alongside the broader market.

At the start of Wednesday’s session it is up 0.5 per cent to 20,015, while the benchmark S&P 500 is adding 10 points to 2,290. The Dow’s latest charge, and the S&P 500’s close new record, come as bulls are freshly energised by President Trump’s revival of some contentious infrastructure projects.

The flurry of action at the White House — which included meeting with heads of the major vehicle makers — reset hopes among investors that Mr Trump’s administration can help boost the US economy following several days of concerns about the new president’s protectionist tone.

A generally supportive corporate earnings season is helping underpin stock markets. And a batch of preliminary purchasing managers’ indices published by Markit on Tuesday, which suggest that growth in the world’s largest advanced economies have begun the year in decent fettle, are adding to the positive mood.

The CBOE Vix index, a measure of expected equity volatility known as Wall Street’s fear gauge, finished on Tuesday at a two-and-a-half-year low of 11.07 and is off another 2.4 per cent to 10.8.

“US stock markets have showed renewed signs of life this week…reigniting the ‘Trump rally’ that we saw in the aftermath of the presidential election last November,” said Kathleen Brooks at City Index. “It looks like the market is happy with the first flourish of Trump’s executive orders.”

Equities

Bourses are being lifted by Wall Street’s new record. The pan-European Stoxx 600 is up 1.3 per cent and flirting with a 13-month high as banks and insurers rally.

Earlier, Japan’s Topix rose 1 per cent, while Australia’s S&P/ASX 200 added 0.4 per cent as commodity stocks bounced.

BHP cut its guidance for copper production in the 2017 financial year, owing to power outages at one of its Australian mines. Nevertheless, its shares climbed 3.3 per cent in Sydney, while stablemate Rio Tinto gained 3.8 per cent after announcing late on Tuesday that it would sell most of its coal business to China’s Yanzhou Coal for $2.45bn.

Hong Kong’s Hang Seng gained 0.4 per cent, while on the mainland China’s Shanghai Composite was up 0.2 per cent.

Fixed income

The market’s greater emphasis on economic growth was damaging to sovereign debt in the previous session, and sellers are dominating again.

The 10-year US Treasury yield, which moves inversely to the bond’s price, and which rose seven basis points on Tuesday, is up 3 basis points at 2.50 per cent.

Equivalent maturity German Bund yields are advancing 6bp to 0.47 per cent while UK gilts are adding 4bp to 1.45 per cent.

Forex

The greenback is struggling to revive its role in the “Trump trade”, however.

The US dollar index — a gauge of the currency against a weighted basket of peers, which hit a 14-year high of 103.83 at the start of 2017 — is down 0.1 per cent at 100.27 having earlier dropped to 99.84.

The yen is flat at ¥113.78 per dollar, having earlier been boosted by data showing Japanese exports rose 5.4 per cent year on year in December, ending 14 months of decline.

After a choppy period on Tuesday, which followed the UK’s Supreme Court ruling that the government must hold a parliamentary vote before triggering the process to exit the EU, the pound is on the front foot, advancing 0.3 per cent to $1.2560, a six-week high.

The Mexican peso is 0.4 per cent stronger at 21.4300 per dollar even after Mr Trump tweeted that Wednesday would be a “big day” for national security, adding that “among many other things, we will build the wall!”.

The Australian dollar is a notable faller among Asian currencies, down 0.6 per cent to $0.7529 after inflation data for the December quarter fell short of economists’ expectations.

Commodities

Most base metals are seeing profit-taking, with copper off 0.9 per cent to $5,890 a tonne. The red metal finished Tuesday’s London Metal Exchange session at its highest close since June 2015, according to Reuters, as the resources sector was boosted by Mr Trump’s infrastructure moves and the upbeat global PMI data.

Gold is down 0.9 per cent to $1,198 an ounce on Wednesday after slipping 0.8 per cent in the previous session as worries about Mr Trump’s protectionist policies faded for the time being.

The energy sector is sour, with Brent crude, the international oil benchmark, down 1 per cent at $54.87 a barrel while West Texas Intermediate is slipping 0.9 per cent to $52.68.

Additional reporting by Peter Wells in Hong Kong

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Via FT