US stocks erase early losses as stimulus talks continue

The yield curve on US government debt steepened and the stock market gained ground after fresh optimism on a government stimulus deal and positive US employment data.

The yield on the US 30-year Treasury bond climbed almost 5 basis points to 1.68 per cent, its highest level since March. The yield on the US 10-year Treasury note climbed 4bp to 0.863 per cent, the highest level since early June. Bond yields move inversely to prices.

The climbing yields sent the KBW index of bank stocks 3.7 per cent higher, the benchmark’s best day since July. JPMorgan Chase and Bank of America both gained more than 3 per cent.

Gains for bank stocks helped the S&P 500 index to rise 0.5 per cent, erasing morning losses, while the tech-heavy Nasdaq Composite gained 0.2 per cent.

The rebounds from dips early in the day came after Nancy Pelosi, speaker of the House of Representatives, provided a positive outlook on discussions over a US stimulus bill between Democrats and Republicans.

“We continue to be engaged in negotiations, and I am hopeful we will be able to reach an agreement,” Ms Pelosi told reporters on Thursday. She was due to speak later in the day with Steven Mnuchin, Treasury secretary, about a potential deal.

Line chart of (%) showing US government bond yields climb to highest levels in months

The comments followed statements from President Donald Trump on Twitter on Wednesday evening that threw the deal into doubt. Mr Trump said he did not “see any way” that Democrats would “do what is right for our great American workers, or our wonderful USA itself, on stimulus”.

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Mr Trump also accused Ms Pelosi and Chuck Schumer, the Democratic Senate minority leader, of intending to bail out “poorly run” cities and states run by Democrats.

The financial markets were also digesting news that Russia and Iran had obtained voter information and might have used it to try to influence the outcome of the poll, according to the FBI. The revelation increased the likelihood of the election outcome being “messy”, said Colin McLean, managing director or SVM Asset Management.

“If there is a Trump win, I don’t think it will happen quickly, as there will be extra vote counting and widespread complaints,” he said.

Mr Trump is due to face off against his Democratic challenger Joe Biden on Thursday evening in the final debate before the November 3 election. Mr Biden currently leads the polls for a win.

The rise in stock prices was helped along by data released in the morning that showed US jobless claims this month fell to their lowest level since March and by encouraging corporate earnings data.

A quarter of the companies in the S&P 500 have now reported with more than four out of five exceeding analyst earnings expectations, according to Refinitiv.

Energy stocks were the day’s best performers gaining 4.2 per cent as the price of Brent crude, the international benchmark, climbed 1.8 per cent to $42.49 a barrel.

The index tracking the dollar against six main currencies rose 0.4 per cent and the euro fell by 0.4 per cent against the greenback. The pound suffered its worst day in a week, falling 0.6 per cent to purchase $1.3076 after jumping against the dollar on Wednesday as post-Brexit trade talks appeared to take a positive turn.

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In Europe, the regional Stoxx 600 traded flat after Germany reported weak consumer confidence data and delays to a US fiscal stimulus deal.

Hetal Mehta, European economist at Legal & General Investment Management, warned that European shares remained vulnerable to a lack of progress on fiscal stimulus in the US.

“If you have stronger growth in the US, that spills over into other parts of the world, particularly with the US running a trade deficit, higher spending in the US boosts European exports,” she said.



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