SYDNEY: Asian share markets firmed on Thursday while bonds held big gains as investors awaited a clear result from the U.S. election, with the likely prospect of policy gridlock seemingly warmly welcomed by Wall Street overnight.
MSCI's broadest index of Asia-Pacific shares outside Japan added 0.5per cent to reach its highest since March 2018. Japan's Nikkei rose 0.9per cent to a nine-month top and South Korea put on 1.5per cent.
E-Mini futures for the S&P 500 firmed 0.3per cent, adding to sharp overnight gains.
Both President Donald Trump and Democratic challenger Joe Biden have paths to 270 Electoral College votes as states tallied mail-in ballots. Biden held a narrow lead in Wisconsin while Trump's campaign filed a lawsuit to try and halt vote counting in that state.
(For the latest election results and more coverage, click: https://ift.tt/2GWx4rG)
Betting sites swung toward Biden as the results trickled in, having earlier heavily favoured Trump.
Yet the prospects of the Democrats taking the Senate also dimmed, pointing to deadlock should Biden take the White House.
"Equity markets have now decided they like the prospect of a 'do nothing' President, lacking control of both houses of Congress – in which respect history is on their side," said Ray Attrill, head of FX Strategy at National Australia Bank.
"This view will, though, remain contingent on some sort of COVID-19 related fiscal package being agreed, ideally sooner rather than later."
Technology and healthcare stocks had led the charge higher overnight on bets a divided government would stunt chances for big reforms or corporate tax hikes.
That helped the Dow end up 1.34per cent on Wednesday, while the S&P 500 gained 2.20per cent and the Nasdaq 3.85per cent.
Bond markets assumed a divided government would greatly reduce the chance of debt-funded spending on stimulus and infrastructure next year, and thus less bond supply.
That saw 10-year Treasury yields dive all the way back to 0.75per cent, having touched a five-month top of 0.93per cent at one stage on Wednesday.
The overnight drop of 11 basis points was the largest single-day move since the COVID-19 market panic of March.
The diminished chance of massive U.S. fiscal stimulus will also pile pressure on central banks globally to inject further liquidity, just as the Federal Reserve and Bank of England hold policy meetings.
"Both could be interesting given the need for central banks to do more," said Chris Beauchamp, chief market analyst at IG.
"The Fed in particular will have to take up its QE role again with a weary sigh, in order perhaps to provide yet another bridge to the future when, hopefully, a government stimulus package will have been agreed."
A renewed focus on Fed easing could weigh on the dollar once more, after a wild ride overnight. The dollar index was last at 93.403, a lot nearer Wednesday's low of 93.070 than the top of 94.308.
Likewise, the dollar settled back to 104.32 yen having briefly been as high as 105.32 overnight. The euro edged up to US$1.1733, well away from a low of US$1.1602.
Sterling had troubles of its own after the Telegraph newspaper reported the BoE was considering a move into negative interest rates.
That left the pound flat at US$1.2966, compared with an overnight peak of US$1.3139.
All the talk of policy easing put a floor under gold prices, leaving the metal a shade firmer at US$1,904 an ounce.
Oil prices held most of their overnight gains made on wagers a deadlocked U.S. government would be unable to pass major environmental legislation that favoured other forms of energy.
U.S. crude eased back 31 cents to US$38.84 a barrel, but that followed a jump of 4per cent on Wednesday, while Brent crude futures were last at US$41.20.
(Additional reporting by Koh Gui Qing; Editing by Sam Holmes)
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