US stocks advance toward record high on stimulus; gold crashes

A gauge of global equity markets rose on Tuesday as a Wall Street benchmark neared its record high, lifted by hopes for fresh US stimulus and signs of a growing American economy that spurred yields to climb and thrashed gold prices.

Hopes of steady economic recovery from the Covid-19 pandemic boosted sentiment, helping European stocks hit a near three-week high as automakers gained on a surge in China sales numbers.

The S&P 500 neared its February 19 peak, when investors started dumping shares in anticipation of what proved to be the biggest US economic slump since the Great Depression.

The dollar resumed its weeks-long decline against a basket of peers and the euro topped $1.18 as investors flocked to currencies that benefit from an improving global market outlook, while gold prices dived as expectations of a US stimulus deal boosted risk appetite.

Spot gold prices fell over 5 per cent, on track for the largest one-day drop in over seven years and silver plunged over 12.5 per cent, also the largest drop since 2013.

Spot gold last dropped 5.3 per cent to $1,919.96 an ounce.

US producer prices increased by the most in more than 1-1/2 years in July, and the Labour Department's producer price index for final demand rose 0.6 per cent, driven by a surge in portfolio management fees and rising costs for gasoline.

Optimism around economic recovery

The market believes the economy will grow and that the pandemic will be overcome, said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.

“Short term, we're going to get stimulus,” Ghriskey said. “Longer term is that we're going to get through this virus. We're going to have a vaccine eventually.”

MSCI's benchmark for global equity markets rose 0.71 per cent to 568.08, off just over 2 per cent from its record, while Europe's broad FTSEurofirst 300 index closed up 1.64 per cent at 1,436.83.

On Wall Street, the Dow Jones Industrial Average rose 0.93 per cent, the S&P 500 gained 0.33 per cent and the Nasdaq Composite dropped 0.45 per cent. The S&P was less than half a percentage point from a fresh record.

Russian President Vladimir Putin's announcement that Russia had become the first country to grant regulatory approval to a Covid-19 vaccine after less than two months of human testing aided sentiment, some analysts said.

“I'm not sure people put a lot of credence in the Russian vaccine, which hasn't been tested,” Ghriskey said. “But who knows? Treatments are getting better and the economy is slowly improving.”

Benchmark 10-year notes last fell 24/32 in price to yield 0.6515 per cent, from 0.574 per cent late on Monday.

Sterling and commodity-linked currencies such as the Australian and Canadian dollars, as well as the Norwegian crown, gained against a broadly weakening dollar.

The euro rose 0.19 per cent, to $1.1758. The dollar index fell 0.111 per cent, and the Japanese yen weakened 0.60 per cent versus the greenback at 106.58 per dollar.

COMMENT NOW