By Riva Gold
Global stocks mostly firmed Friday, on course for weekly gains,
as a postelection rally continued to push markets higher.
The Dow Jones Industrials Average opened trading slightly
higher, up 17 points, or 0.1%, to 19635. The S&P 500 was 0.2%
higher and the Nasdaq Composite rose 0.4% in early trade. Both the
Dow the S&P 500 ended Thursday at fresh records. U.S. stocks
are on track to end the week more than 2% higher, as investors have
continued to pour money into cyclical stocks on expectations for
stronger growth and fiscal stimulus.
The Stoxx Europe 600 was up 0.6% in afternoon trading, set to
close out its best week since February. The index has risen over 4%
this week, supported in recent sessions by expectations for more
stimulus from the European Central Bank and a calm reaction to the
Italian referendum.
The European Central Bank on Thursday defied market expectations
by prolonging its bond-buying stimulus program by nine months, but
at a slower pace. After an initial wobble, the decision dragged
down the euro, boosted wider stock markets in Europe and helped
send Wall Street to fresh records, as investors concluded the ECB
was still signaling an extended period of easy monetary policy.
Those moves broadly continued Friday, with stocks pushing higher
as the euro continued to weaken.
"At first sight, this would have seemed to be a hawkish move,
but ECB President Draghi managed to package this decision with
dovish commentary, by stressing that the ECB stands ready to
increase or extend QE if needed and that tapering wasn't discussed
and is 'not in sight'," said strategists at UBS.
Some of the week's best performers retreated slightly on Friday.
Europe's export-heavy auto sector fell 0.5% after rising over 8%
this week, while the Euro Stoxx Banks Index fell 1.7% on Friday but
remained on course to end the week up over 11%.
Bank shares globally have benefited in recent weeks in
anticipation of a wider difference between short and long-dated
government bonds, higher growth, and a rollback of regulation in
the U.S.
Japan's TOPIX Banks index has risen roughly 6% this week, while
the S&P 500 Financials sector has also gained 4.7%. Italian
banks fell 3% Friday but even they have risen nearly 12% this week,
despite concerns that Sunday's referendum result could derail plans
for the most troubled lenders to raise capital.
"Banks have had the double benefit of expectations for lower
taxes [in the U.S.] and higher interest rates," said Christopher
Dyer, director of global equity at Eaton Vance. "We've been
trimming our exposure at the margin, because we think much of the
good news is already priced in," he said.
In currencies, the dollar was slightly firmer ahead of next
week's Federal Reserve meeting, where the bank is widely expect to
raise interest rates. Asian currencies mostly sold off, with the
yuan, Korean won and yen weakening modestly against the dollar.
The euro fell 0.3% against the dollar to $1.0576 on Friday amid
week economic data, after its biggest daily drop since the U.K.
referendum.
The common currency's moves have defied many investors'
expectations this week, ultimately strengthening after a resounding
"no" vote in the Italian referendum and weakening significantly
after the ECB signaled it would reduce the size of its monthly
purchase program.
The yield on the 10-year German bund fell to 0.326% from 0.394%
on Thursday, its highest close since January, while the two-year
note fell to minus 0.747% from minus 0.732%. The 10-year U.S.
Treasury yield rose to 2.406% from 2.391%. Yields move inversely to
prices.
Ahead of the ECB meeting, investors had been betting the bank
would maintain its current pace of bond purchases for at least six
months. Many remain divided now on whether the ECB is preparing to
end its monetary stimulus program, or expand it further.
"They might buy more [bonds] in total, but the amount they're
buying is reducing -- in our world, that is the start of a taper,"
said Colin Graham, chief investment officer at BNP Paribas
Investment Partners. "Despite [ECB President Mario Draghi] saying
this is not tapering many times, we are past the peak of
quantitative easing globally."
High-grade credit investors have been retreating from the asset
class since October on expectations the ECB would consider
tapering, while government bond funds have been hit by outflows as
those concerns have grown, according to strategists at Bank of
America Merrill Lynch.
Earlier, Japanese stocks rose 1.2% Friday as the yen weakened,
in their fifth straight weeks of gains, while stocks in Australia
edged up 0.3%, led by energy and financial stocks.
Hong Kong's Hang Seng Index fell 0.4%, however, due to a sharp
selloff in casino stocks. The South China Morning Post reported
that the daily ATM withdrawal limit in Macau for China UnionPay
bank-card holders would be cut by half.
Willa Plank
contributed to this article
Write to Riva Gold at riva.gold@wsj.com
(END) Dow Jones Newswires
December 09, 2016 09:47 ET (14:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.