TOKYO (Reuters) – Global stock prices plummeted and yields rose on Wednesday as investors predicted Democrats could win both races in a U.S. Senate in Georgia and give them control of the chamber.
Together with their narrow majority in the House of Representatives, a “blue cattle” of Congress could usher in greater fiscal stimulus and pave the way for President-elect Joe Biden to implement greater corporate regulation and higher taxes.
While the races were too close to invest, with 98% of the vote, Democrat Raphael Warnock had a slight lead over current Kelly Loeffler, while Democratic challenger Jon Ossoff left Republican David Perdue with just 3,600 votes .
“While Biden proposes reversing President Donald Trump’s tax cuts, raising the minimum wage and strengthening oversight of various industries, some may argue that his agenda is not particularly market-friendly,” said Vasu Menon, executive director of investment strategy, at OCBC Bank in Singapore.
The futures contract for the S&P 500 fell by 0.8%, while Nasdaq futures fell by 1.6% for fear that the Democrats could comply with stricter regulations on large technology companies.
Other industries, such as banking, oil and gas and healthcare, could be more heavily explored, while infrastructure and alternative energy sectors could benefit.
The Japanese Nikkei fell 0.4%, while MSCI’s Asian Pacific Index, excluding Japan, earlier wiped out gains to trade 0.2% lower.
Ten-year U.S. treasury yields have risen above 1% for the first time since March due to the expectation of larger government loans under a Senate, where Vice President-elect Kamala Harris would become a break-even point.
“The reaction of US bonds reflects the growing vigilance over the Democrats’ victory in the run-up,” said Shogo Maekawa, global market strategist at JPMorgan Asset Management.
‘It is also natural that shares fall in the short term, as there may be tax increases and stricter regulations for large technologies and so on. On the other hand, there must also be positive factors, such as more stimulus and further spending on infrastructure. ”
Viznu Varathan, economist at Mizuho Bank in Singapore, expects the decline in equities to be short-lived.
“My suspicion is that the immediate knee-jerk reaction would be a slightly stronger dollar and a slight setback in stocks, because people are still magnifying things,” he said. “I do not think it is a trade that will continue to chase and expand markets.”
Shares in Shanghai made a bigger profit on Wednesday, with the CSI300 index rising 0.5% and reaching the best levels since 2008, lifting the chaotic handling of the New York Stock Exchange over how it trades Chinese companies will deal to comply with the sanctions imposed by the Trump administration.
The exchange took a second sudden turn as it says it is reconsidering its plan to keep three Chinese telecommunications giants.
Oil prices held steady and maintained their profits of almost 5% on Tuesday after Saudi Arabia offered to voluntarily reduce its oil production.
Tensions following the seizure of a South Korean vessel from OPEC member Iran also weakened nerves, further supporting the market.
Tehran on Tuesday denied using the ship and its crew hostage, a day after seizing the Gulf tanker while seizing a claim for Seoul to release $ 7 billion in funds that was frozen under US sanctions.
US crude futures added 0.2% to $ 50.05 a barrel, rising 4.9% on Tuesday.
International benchmark for Brent crude futures rose 0.6% to $ 53.91.
In currencies, the US dollar reached a new low before jumping back on the prospects of the “blue whip” in Georgia.
The euro rose to $ 1.2328, a high last seen in April 2018, while the yen hit a ten-month high of 102,595 to the dollar.
Spot gold hit $ 1,948.20 an ounce after hitting a two-month high earlier in the day.
Bitcoin rose more than 5% to a record high of $ 35,879.
Additional reporting by Scott Murdoch in Hong Kong, Tom Westbrook in Singapore; Edited by Sam Holmes and Kenneth Maxwell