SYDNEY (Reuters) – Global stocks paused to assess a record month on Monday as the prospect of a vaccine-led economic recovery next year and even more free money from central banks overshadowed immediate concerns regarding the coronavirus pandemic.
A survey showing that factory activity in China far exceeded expectations in November contributed to that sentiment, and the country’s central bank surprised with cheap loan aid. That left blue chips up 1.3% for the day and 7.4% for the month.
The rush for risk also benefited oil and industrial commodities while undermining the dollar and gold, a safe haven.
“November is shaping up to be a great month for equity investors with Europe leading the charge nationally / regionally,” said Rodrigo Catril, NAB analyst.
Many European stock markets posted their best month with France up 21% and Italy up almost 26%. The MSCI measure of global equities is up 13% for November so far, while the S&P 500 has climbed 11% to all-time highs.
On Monday morning, the largest MSCI index of Asia-Pacific equities excluding Japan fell 0.4%, to be up nearly 11% for the month in its best performance since late 2011.
Japan’s Nikkei 225 fell 0.4%, but was still 15.4% higher on the month for the biggest gain since 1994.
E-Mini futures for the S&P 500 fell 0.4% and EUROSTOXX 50 futures fell 0.6%.
“The markets are overbought and risk a short-term pause,” said Shane Oliver, head of investment strategy at AMP Capital.
“However, we are now in a strong seasonal part of the year and investors have yet to fully discount the potential for a very strong recovery in growth and earnings next year as the stimulus combines with vaccines.
Cyclical recovery stocks, including resources, industrials and financials, are expected to be relative outperformers, he added.
The surge in equities put some competitive pressure on safe haven bonds, but this was largely dampened by expectations of increased asset purchases by central banks.
The Swedish Riksbank surprised last week by expanding its bond buying program and the European Central Bank is expected to follow in December.
DOLLAR IN DECLINE
Federal Reserve Chairman Jerome Powell testified before Congress on Tuesday amid speculation about new policy measures at his next meeting in mid-December.
As a result, US 10-year yields ended the month almost exactly where they started at 0.84%, a solid performance given the exuberance of equities.
The US dollar has not been so lucky.
“The idea that a potential Treasury Secretary (Janet) Yellen and Fed Chairman Powell could work more closely to shape and coordinate an extremely easy monetary policy and massive fiscal stimulus that could lead to a rapid recovery from the pandemic put the dollar under pressure, ”said Robert Rennie, head of capital markets strategy at Westpac.
Against a basket of currencies, the dollar index was pinned at 91.771 after falling 2.4% for the month to hit a low last seen in mid-2018.
The euro has caught a tailwind from the relative outperformance of European stocks and has climbed 2.7% for the month so far to $ 1.1967. A break out of the September peak at $ 1.2011 would set the stage for a 2018 high at $ 1.2555.
The dollar even fell against the Japanese yen, a safe haven in itself, losing 0.7% in November to hit 103.89 yen, although it remains well above key support at 103.16.
The British pound was at $ 1.3334, having climbed steadily this month to its highest level since September, as investors bet a Brexit deal would be negotiated even as the talks deadline looming more and more.
One of the main victims of the risk rush was gold, which was near a five-month low at $ 1,771 an ounce after losing 5.6% so far in November.
Oil, on the other hand, has benefited from the prospect of a pick-up in demand if vaccines allow travel and transportation to resume next year. [O/R]
Some profit-taking began on Monday ahead of an OPEC + meeting to decide whether the producer group will extend large production cuts. Brent futures fell 52 cents to $ 47.66, while US crude fell 60 cents to $ 44.93 a barrel.