Stocks surge on optimism about possible end of US government shutdown

The dollar continued to lose ground from the previous week, despite the optimism of global shares rising on Monday.

On Sunday, the U.S. Senate advanced a bill aimed at reopening federal government. The measure would end a 40-day shutdown which has impacted federal workers and food aid. It also slowed down air travel.

The breakthrough pushed Nasdaq Futures up by 1.2%, while S&P futures rose by 0.7%. The EUROSTOXX Futures, DAX Futures, and FTSE Futures all rose more than 1%.

The Nikkei, Japan's stock market index, advanced by 0.97%.

Charu Chanana is the chief investment strategist of Saxo.

The Senate may pass the bill but it must be approved by both the House of Representatives, and then sent to the President Donald Trump, who will sign the package. This process could take several hours.

The shutdown is taking a toll on the U.S. Economy. Federal workers, from airports to the military and law enforcement are not paid. Meanwhile, the central bank has limited access to government data.

Kevin Hassett, White House economist, said in an exclusive interview that if the government shutdown continues the fourth quarter GDP of the United States could be negative. The data released on Friday shows that the U.S. consumer's sentiment fell to a low of about 3-1/2 years in early November, as consumers worried about economic consequences.

Chanana said that while a deal could be beneficial to the market by restoring trust and liquidity, the damage done to the economy from the U.S. shutdown, which is now the longest in history, would not be reversed.

On Monday, the overall risk sentiment was still positive.

Hong Kong's Hang Seng Index grew 0.6%, while the CSI300 blue chip index in China fell 0.24%.

The data released on Sunday shows that China's producer prices deflation has eased and that consumer prices have returned to a positive level. This is as the government intensifies its efforts to reduce overcapacity and to stop fierce competition between firms.

The benchmark 10-year Treasury yield increased by 3.5 basis points, to 4.1278%. The yield on the two-year bond rose by about 3 basis points to 3.5886%.

The dollar has recovered some of the losses it suffered last week as investors weighed the prospects for the U.S. economic outlook against a Federal Reserve that is more hawkish.

Despite recent data that fueled concerns about a weakening U.S. labor market, Fed officials reiterated last week their preference to go slow with further rate reductions.

The euro fell 0.08% against the dollar to $1.1556. The dollar index was unchanged at 99.66, while sterling fell by 0.14% to $1.3147.

The markets are pricing in 63% of the chance that Fed will reduce rates in December.

In a recent note, ANZ economists said that "the Fed's talk last week was overwhelmingly in favor of delaying easing until December," even though the majority of speakers were regional Fed Presidents who do not vote.

For now, the 12-member panel, which includes seven governors and 5 regional Fed presidents, is voting in favor of a 25-bp rate reduction, with both hawkish as well as dovish dissensions. We do not see a rate reduction as a foregone conclusion and recognize that the decision will be based on the incoming data, and the balance of the risks associated with the future.

The dollar rose 0.3% against the yen to 153.91.

A summary of the opinions expressed at the Bank of Japan's October meeting revealed that policymakers were increasingly convinced of the need to increase interest rates soon. Some even argued for the necessity of ensuring wage increases will continue, according to the report.

Brent crude futures rose 0.72% per barrel to $64.09, while U.S. Crude gained 0.8% at $60.23.

Spot gold rose 1.4%, to $4.055.05 per ounce.

(source: Reuters)