London — Bonds dropped and stocks rose on Thursday as investors bet Democrat control of the US Congress would enable president-elect Joe Biden to borrow and spend heavily, while a bruised dollar strained to recover from near-three year lows.
Europe’s Euro Stoxx 600 gained 0.2%, with indices in Frankfurt and Paris were up 0.4% and 0.6%, respectively. Growth-linked sectors from energy to miners rallied on the prospects of more US stimulus, though UK shares turned negative.S&P 500 futures rose 0.4%. In the early hours of Thursday, a shaken Congress formally certified Biden’s election victory, after hundreds of President Donald Trump’s supporters had stormed the US Capitol.
“The market is saying the reflation trade is on,” said Justin Onuekwusi, portfolio manager at Legal & General Investment Management. “The Democrat sweep means there will be more flexibility and speed to writing a fiscal cheque so a one-off US fiscal boost as a bridge to a post-vaccine world is definitely on the cards.”
Eurozone government bonds followed suit, with Germany’s 10-year bund yield up slightly to -0.55%. Japanese government bonds also slipped.The Democrat victory reverberated in currency markets, too. The dollar had sunk on the Georgia results to a near-three year low against a basket of six major currencies, with traders betting growing US trade and budget deficits would weigh on an already bruised dollar.Against the euro, the dollar clawed away from an almost three-year low of $1.