Stock markets extend rally – Financial Times

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Tuesday 12:30 BST

What you need to know
● Stock markets extend rally on French election relief
● Euro adds to gains as Paris’ bond yields steady
● Havens attract sellers, pushing down gold, the yen and Bund prices
● Traders eye Nasdaq 6,000 as company earnings slip into fast gear
● Brent crude prices higher as base metals firm
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Hot topic

The relief over the French election, which boosted investor sentiment at the start of the week, is continuing to resonate, though the “risk on” tone is tempered as the euro’s momentum slows and bond markets consolidate.

The CAC 40, France’s blue-chip equity index, which jumped 4.1 per cent on Monday to its best close in nine years, is up another 0.4 per cent.

The gains come as investors welcome the likelihood that Emmanuel Macron, the centrist candidate, will defeat Marine Le Pen, the far-right leader, in France’s presidential run-off scheduled for May 7.

French 10-year sovereign debt yields, which move opposite to the bond price, are up just 3 basis points to 0.80 per cent, keeping the premium with benchmark German Bunds at 43 basis points. Just a couple of weeks ago that spread, which represents the perceived credit risk that investors attach to Paris’ paper, was above 75bp.

The euro is up 0.1 per cent to $1.0877, taking a breather after surging 1.3 per cent in the previous session to its best level in five months.

The forex market is much more relaxed about the common currency’s prospects, with the cost of hedging euro/dollar volatility over the next month down from 13 on Friday to 8.5.

What to watch

Can the Nasdaq Composite hit 6,000 for the first time?

The US technology-heavy equity benchmark closed on Monday at a record high of 5,983.8 as investors remain confident on the prospects for IT and internet-related groups. Hopes for US corporate tax reform are also underpinning valuations.

The 2,534 member, $9tn market cap Nasdaq has gained 11.2 per cent in 2017, easily outpacing the 6 per cent of the broader S&P 500 index.

Strong performances from market giants such as Apple, Alphabet (the owner of Google), Microsoft, Amazon and Facebook have powered the Nasdaq of late.

And with many of those companies reporting their earnings results in the next few days, equity bulls will be hoping some well-received reports can help push the Nasdaq and indeed the broader market to fresh highs.

Equities

US index futures suggest the S&P 500 will open later in New York at 2,377, adding another 3 points to the 25.5 gained on Monday.

Europe continues to be upbeat, the Stoxx 600 index climbing 0.4 per cent as financials overcome weakness in miners.

London’s FTSE 100, which rose 2.1 per cent at the start of the week, is up 0.2 per cent, while Germany’s Dax earlier hit a new record high of 12,481, but is now flat on the day at 12,460.

The bullish mood was evident in Asia, too, with Japan’s Topix and Hong Kong’s Hang Seng index up 1.1 per cent and 1.3 per cent, respectively.

But in mainland China, the Shanghai Composite rose just 0.2 per cent, unable to recover much of Monday’s 1.4 per cent drop which came amid fears Beijing is looking to clamp down on stock market speculation.

Markets in Australia and New Zealand were closed for a public holiday.

Forex

The reduction in market anxiety is continuing to weigh on the “haven” Japanese yen, which is off 0.7 per cent to ¥110.48.

The dollar index, a measure of the US currency against a basket of global peers, is down 0.1 per cent at 99.05 reflecting the firmer euro.

Sterling is adding 0.2 per cent to $1.2825 as traders await further developments in the UK election campaign.

The Australian dollar is 0.4 per cent lower at $0.7536 ahead of inflation data due on Wednesday, while its Canadian namesake is 0.5 per cent softer at C$1.3565 per buck, near its weakest in two years after Washington slapped tariffs on Canadian lumber imports.

Fixed income

As demand for safety plays wanes, so prices of highly rated sovereign debt recede.

The US 10-year Treasury yield is up 3bp to 2.31 per cent ahead of US consumer confidence and home sales data due at 15:00 BST. Equivalent maturity German Bunds are adding 3bp to 0.37 per cent.

Ten-year gilt yields are gaining 3bp to 1.08 per cent despite news that the UK government’s borrowing fell to its lowest since 2008.

Commodities

Oil prices are striving to rally after suffering last week following data that showed an unexpected rise in US weekly gasoline inventories.

Brent crude, the international benchmark, is up 0.2 per cent to $51.70 a barrel, while West Texas Intermediate, the main US contract, is gaining 0.1 per cent to $49.26.

Gold is down 0.5 per cent to $1,269 an ounce, following Monday’s 0.6 per cent retreat as sellers continue to emerge as global market sentiment improves.

Additional reporting by Peter Wells in Hong Kong

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