London/Sydney (by Marc Jones, Wayne Cole – Reuters) – World shares paused on Monday to assess a record-breaking month as the prospect of a vaccine-driven economic recovery next year and yet more free money from central banks eclipsed immediate concerns about the coronavirus pandemic.
Helping sentiment was a survey showing that factory activity in China handily beat forecasts in November, and the country’s central bank surprised with a helping of cheap loans. Chinese blue chips ended lower but up nearly 6% for the month and, though Europe’s traders were reluctant to add to their bumper November, it was not going to detract from a record-busting 15% month. [.EU]
The rush to risk has also benefited oil and industrial commodities while undermining safe-haven dollar and gold. “It has been a very, very strong month for markets, especially on the equity side but also on the fixed income side too,” said Rabobank’s Head of Macro Strategy Elwin de Groot.
The positive developments on vaccines and swiftness with which they are likely to be rolled out had been key drivers. “And this market still remains very much supported by liquidity from the central banks,” De Groot added. With the ECB set to provide more stimulus next month “the market view seems to be, what can possibly go wrong?”
Many European bourses are boasting their best month ever with France up 21% and Italy almost 26%. The MSCI measure of world stocks is up nearly 13% for November, while the S&P 500 has climbed 11% to all-time peaks.
MSCI’s broadest index of Asia-Pacific shares outside Japan had ended 1.5% lower on the day but was still up almost 10% for the month. Japan’s Nikkei 225 eased 0.8%, but was still 15% higher on the month for the largest rise since 1994. E-Mini futures for Wall Street’s high-flying S&P 500 dipped 0.4% “Markets are overbought and at risk of a short term pause,” said Shane Oliver, Head of Investment Strategy at AMP Capital. “However, we are now in a seasonally strong time of year and investors are yet to fully discount the potential for a very strong recovery next year in growth and profits as stimulus combines with vaccines.”
Cyclical recovery shares including resources, industrials and financials were likely to be relative outperformers, he added. The surge in stocks has put competitive pressure on safe-haven bonds but much of that has been cushioned by expectations of more asset buying by central banks.
Sweden’s Riksbank surprised last week by expanding its bond purchase program and the European Central Bank is likely to follow in December. German 10-year Bund yield was down 1.1 basis points at -0.598%, its lowest since Nov. 9. The rest of the core market also fell by around 1 bp.
