With global stock markets basking in the afterglow of Dow crossing 20,000 for the first time, on Thursday they propelled higher in sympathy with the US, as Asia and Europe are trading solidly in the green, as is the dollar which rebounded strongly off a 5 week low. Copper touched the highest price since November after reports of lower production. Global government bonds extended declines as France’s 10-year yield breached 1% for the first time in more than a year. Gold declined.

The Dow had been flirting with 20,000 points for weeks so it brought widespread cheer when it broke through. It only topped 19,000 in November and this was the second-shortest time on record for the index to jump 1,000 points. The next big milestone on deck is the S&P 2,300 – also the year end target for roughly half of Wall Street strategists  – which should be taken out shortly after the open.

As noted yesterday, the ‘Trump trade’, based on vague hopes of U.S. stimulus reflating growth, is back on – egged on by some impressive corporate earnings, higher commodity prices and signals that global growth is finally finding some traction. The MSCI’s 46-country All World index was within touching distance of its lifetime high as European stocks rose 0.5% to their highest since Dec. 2015, and within 1.5% of their all time highs, completing a global loop after Asia’s main bourses also saw a bumper session.

As Bloomberg notes, record highs in the world’s biggest equity indexes is fueling optimism that renewed growth in the U.S. will filter through into other major global economies, creating demand for commodities exports and driving investors out of fixed-income assets and gold. The rally may meet resistance from economic indicators that have reached the upper reaches of historical ranges, according to Deutsche Bank AG strategists.

“The surge in growth momentum that has been a key driver of the sharp moves in global equity and rates markets is likely to fade over the coming months,” according to a note published by strategists led by London-based Sebastian Raedler Wednesday.

Others were more optimistic: “The reflation trades are being driven by two main things,” said Neil Williams, chief economist at fund manager Hermes. “Countries more willing to open the fiscal box and we are awaiting Mr Trump’s long-awaited tax cuts in mid-year. And second is the prospect of ultra-loose monetary policy.”

A curious outlier was the dollar which as first pointed out here, has decoupled from the Trump Trade, and was wallowing near a seven-week low after losing its momentum this year and taking a dislike to Trump’s more controversial plans such as building a wall on the border with Mexico. However, the dollar index clawed back from its overnight lows to stand flat on the day.

“The problem that the greenback is having right now is two- fold – first Trump has been talking down the currency and second, his policies make foreign investors nervous,” wrote Kathy Lien, managing director of FX strategy for BK Asset Management. Sterling hit a six-week high after solid GDP data but then turned jumpy.

There were no such concerns in bond markets. Ten-year U.S. Treasury yields were back above 2.5% to their highest of 2017 so far and the equivalent German and French yields jumped to their highest levels in over a year.

In commodities, crude oil prices also bounced as global sentiment lifted and the dollar weakened, which helps non-U.S. buyers of dollar-denominated raw materials. WTI was up 0.8 percent at $53.18 a barrel after losing the same amount the previous day. Brent added 0.8 percent to $55.53 a barrel, while cooper hit a two month high as a strike loomed at the world’s biggest mine in Chile.

Europe’s cross-country European STOXX 600 index was trading 0.6% higher by 0945 GMT at its highest since December 2015. Germany’s DAX hit its highest since May 2015 and London’s FTSE was near an all-time record. Milan also showed little sign of nerves after Italy’s constitutional court on Wednesday opened the way for fresh elections in the country this year, potentially in the summer. Drug and healthcare companies lead the 19 industry groups of the Stoxx 600, with 40 of 42 members higher. Swiss drugmaker Actelion Ltd. jumped as much as 22% percent after agreeing to a $30 billion takeover by Johnson & Johnson.

Asian shares had a good day too. Japan’s Nikkei brushed aside a stronger yen to rise 1.7 percent, Hong Kong’s Hang Seng .HSI climbed 1.3 percent and Shanghai .SSEC edged up ahead of a week-long Lunar New Year holiday. “Today’s excitement mainly comes from strong U.S. stocks overnight, but people are also positive about Japanese companies’ earnings, especially machinery manufacturers,” said Takuya Takahashi, a strategist at Daiwa Securities in Tokyo.

S&P 500 futures were up 0.1 percent after the underlying index jumped 0.8 percent to 20,068.51 on Wednesday.

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Bulletin headline summary

• With a busy morning of stock-specific news, equities open higher following on from US and Asia as markets revel in the ongoing “Trump-factor”
• The big data release this morning was in the UK as the Q4 GDP numbers saw a higher than expected 0.6% rise vs consensus +0.5%; although failed to lift GBP/USD
• Looking ahead, highlights include UK GDP, US Weekly Jobs Data, US Services PMI, ECB’s Coeure and a US 7yr Note Auction

Market Snapshot

• S&P 500 futures up 0.1% to 2296
• Stoxx 600 up 0.6% to 369
• FTSE 100 up 0.2% to 7179
• DAX up 0.6% to 11874
• German 10Yr yield up 3bps to 0.49%
• Italian 10Yr yield up 9bps to 2.2%
• Spanish 10Yr yield up 5bps to 1.59%
• S&P GSCI Index up less than 0.1% to 398.3
• MSCI Asia Pacific up 0.7% to 142
• US 10-yr yield up 3bps to 2.54%
• Dollar Index up 0.22% to 100.25
• WTI Crude futures up less than 0.1% to $52.80
• Brent Futures up 0.2% to $55.21
• Gold spot down 0.6% to $1,193
• Silver spot down 0.8% to $16.86

Top News

• J&J Seals $30 Billion Actelion Deal in Push for Rare Disease: Actelion shareholders to get $280/share in cash in deal
• Dutch Regulator Accidentally Posted Soros’s Short Positions: ‘Human error’ led to publishing on watchdog’s website
• Credit Suisse Said to Consider Dublin Expansion as Brexit Nears: Ireland is courting lenders in race to win new finance jobs
• Nordea CEO Says Trump, Brexit Bigger Threats Than Negative Rates: CEO says there’s no need to adjust current dividend policy
• United Rentals to Acquire Competitor NES in $965 Million Deal
• Sands Macau’s Newest Casino Is a Hit, Hurting Its Other Resorts
• EBay Revives Investor Faith With Upbeat 2017 Forecast
• STMicro Predicts Good Momentum, to Raise Investment in 2017
• RBS to Take $3.8 Billion Charge Tied to U.S. Mortgage Probe
• Mattel Crashes as Holiday Stumble Raises Turnaround Doubts
• Unilever Sees Slow Start to Year After Sales Miss Estimates
• Toshiba Said to Plan Selling Chip Unit Stake to Multiple Buyers
• China Said to Order Banks to Curb New Loans in First Quarter
• Verizon Offers $29 Billion Bond Swap to Tackle Looming Debt Wall
• Ericsson Sales Exceed Estimates in Relief for New CEO Ekholm
• KKR Said to Snag Goldman’s Role in UFC Loan After Fed Scolding
• U.K. Economy Dismisses Brexit Threat as Growth Stays Strong
• Jack Ma’s Ant Financial Close to Buying MoneyGram, WSJ Says
• Conoco, Alaska State Gas Co. in Talks on LNG Plant Sale: Platts
• LG Display Excluded From Suppliers for Apple iPhone 8: Maeil
• FelCor Lodging Said to Consider Sale of Company, DJ Says
• China Says U.S. Concerns on Its Semiconductors Overblown: WSJ

Asia equity markets rose, blostering positive global risk sentiment after another record US trading day where all 3 major indices extended on all-time highs and the DJIA finally broke above 20,000. This buoyed Nikkei 225 (+1.8%) which led the region on firm gains in financials after similar outperformance of the sector during US hours, despite trade being noticeably quieter with Australia, India and Taiwan all closed due to public holidays. Hang Sang (+1.4%) and Shanghai Comp. (+0.3%) also conformed to the widespread upbeat tone, although the mainland bourse slightly lagged after the PBoC conducted a CNY 250b1n weekly net drain, while several blue chips issued profit warnings and Chinese Industrial Profits also slowed. 10yr JGBs traded lower as widespread heightened risk appetite spurred outflows from safe havens, while a better than previously received enhanced liquidity auction for 10yr, 20yr and 30yr JGBs only provided mild reprieve.

Top Asian News

• Deutsche Bank, Korea Exchange to Cancel Samsung Fat-Finger Trade: Trader accidentally posted order for more than 1.5m shares
• China Sees Gray Generation as Quarter of Population by 2030: Shrinking labor force would create a drag on consumption
• Barclays Veteran Andy Jones to Step Down as Asia-Pacific Chief

In Europe, with a busy morning of stock-specific news, equities open higher following on from US and Asia as markets revel in the ongoing “Trump-factor.” European earnings are beginning to pick up and subsequently dictating a bulk of the stock-specific moves. However, the main story of the session so far has the be healthcare giant JNJ striking a USD 30bIn deal with Actelion. Subsequently shares in the Co. rose 20% making it top of the Stoxx 600 leader board by some distance. Elsewhere in equities, Diageo (DGE LN) shares are up 5% after the Co. reported a 21% rise in its EPS and Organic op profit grew 4% inline with top end of guidance. In fixed income markets yields are rising with both French and German 10yr yields rising to recent highs. Today’s CTZ and BTPei taps did little to sway Italian prices. However, but after the Italian constitutional court ruled on a voting system to be illegal we may see some scope for more volatility in the Italian spreads. Stateside, 1800GMT sees the US 7yr note auction.

Top European News

• U.K. Brexit Boom Still Sees Economy Plagued by Old Problems: Services were sole contributor to growth in fourth quarter
• Fiat Chrysler Sees 2017 Debt Almost Halving Amid Cash Push:Carmaker ‘confirms conviction’ it can reach 2018 goals
• Unilever Falls as Slow Start Casts Pall Over Consumer Sector

In currencies, the Bloomberg Dollar Spot Index was up 0.3 percent, though still headed for a fifth straight weekly decline, the longest stretch since May 2015. The pound weakened 0.2 percent to $1.261 after earlier climbing as much as 0.3 percent after a data release showed the U.K. economy grew faster than economists forecast in the fourth quarter. The euro slipped 0.3 percent to $1.0721.

In commodities, gold fell 0.6 percent to $1,193.24 an ounce after dropping 1.4 percent over the previous two sessions as optimism around corporate earnings fueled risk appetite. West Texas Intermediate crude rose 0.3 percent to $52.91, paring Wednesday’s declines as investors weighed output cuts from OPEC and other producing nations against expanding U.S. crude stockpiles. Copper for delivery in three months was little changed on the London Metal Exchange after climbing to the highest since Nov. 28 at $6,045.50 a ton after miner Anglo American said output fell. Iron ore continued its rally for a third day, with futures climbing 1.1 percent.

Turning to the day ahead, we have a busier day over in the US with preliminary wholesale inventories data (+0.1% expected; +1.0% previous) and the Chicago Fed National Activity Index reading (-0.05 expected; -0.27 previous) for December due, followed by weekly jobless claims data and the flash PMIs for January (services: 54.4 expected vs. 53.9 previous; composite: 54.1 previous). We close out the day with readings from the Conference Board leading index for December (+0.5% expected; 0.0% previous) and Kansas Fed manufacturing survey for January (8 expected; 11 previous).

DB’s Jim Reid concludes the overnight wrap

So where were you when you heard the news that the Dow had climbed above 20,000 for the first time? Well i was at my desk taking extra strong painkillers leftover from my various knee operations in an attempt to rid myself of the bad sore throat I’ve finally picked up off my wife and baby. Unlike the market, the whole family is feeling very sorry for themselves at the moment with Liverpool’s semi-final loss last night not being dulled by painkillers!

The Dow (+0.78%) ticked up over 130 points to power through the landmark, while the S&P 500 rose by +0.8% with financials (+1.65%) and healthcare (+0.86%) leading the way. The VIX (10.72) hit its lowest level since July 2014 and is now getting closer to all time low territory. Over in Europe the STOXX 600 also posted big gains of +1.3% (biggest rise since the day the US election result was known) with banks (+3.0%) and insurance (+2.5%) sectors as the key drivers. Banks in particular were likely helped by a continuation in the sell-off in yields. 10Y treasuries and bunds sold off +5bps and +6bps respectively, with US yields topping 2.5% while German yields hovered around their highest levels in a year. 10Y Gilts also saw yields rise by +7bps on the day. Oil was slightly lower (-0.7%) after news of increased US stockpiles but this has been reversed overnight in Asia. Currency markets saw the US dollar (-0.2%) fall against its major peers while sterling rose by +0.6% on the day.

On the topic of Sterling, DB’s FX strategist Robin Winkler published a short note yesterday discussing Sterling’s potentially lost reserve status. He notes that sterling is unlikely to benefit from a broader reallocation of EM currency reserves managed by central banks. He reasons that, to the extent that reserves serve as backstops against currency stress (rather than as sovereign wealth), the pound’s diminishing role in international capital flows post-Brexit should permanently reduce its reserve status. The topic is further discussed in the context of a model in the following note: https://goo.gl/HVBqw8

Staying with DB research our European equity strategist Sebastian Raedler highlights this morning that, according to the flash PMIs out this week, global growth momentum hit a six-year high in January. He argues that the acceleration in growth momentum has been a key driver of the sharp moves in global equity and rates markets over the past six months. Yet, with some economic indicators now in the top 5% of their historical range, he believes the surge in growth momentum is likely to fade over the coming months. This would be consistent with a period of consolidation for European equities, even though he still expects them to move higher by year-end (with an end-2017 target of 375 on the Stoxx 600).

Moving over to our economists our European team published a note reflecting on the Italian Constitutional Court’s ruling yesterday on ex-PM Renzi’s electoral law for the Lower House. They note that in line with expectations the Court has ruled against the two-round system, thus leaving Italy with a system which is likely to continue to lead to fragmented government. Author Marco Stringa thinks the market reaction is likely to be mixed as the chances of a populist (5SM) victory would have been boosted under a 2-round system but that the probability of gridlock at any early election is now more likely. Growth enhancing reforms are unlikely with the governments (fragile coalitions) formed under this system.

Overnight in Asia the biggest story has been the fresh curbs by the authorities on new loans in Q1, especially mortgage lending, The move has perhaps helped China underperform other regional bourses with the Shanghai Composite only +0.14% higher with the Nikkei +1.7% as we type. Financials have led the way in Japan. Meanwhile 10 year JGBs creep higher (+2bps to 0.078%) and further away from the zero level the BoJ is targeting. One to watch as global yields rise.

Now turning to data released yesterday and the European session saw various confidence indicators out of France, of which the January business confidence number disappointed (104 vs. 105 expected) while manufacturing confidence was in line with expectations (106 actual; 106 expected). The IFO survey out of Germany saw broadly soft numbers, as both business sentiment (109.8 vs. 111.3 expected; 111 previous) and business expectations (103.2 vs. 105.8 expected; 105.5 previous) unexpectedly slipped. The current assessment number ticked up but was still marginally short of expectations (116.9 vs. 117 expected; 116.7 previous). The UK CBI industrial trends survey was stronger but with prices seeing the most upward pressure since H1 2011. Yesterday was yet another quiet day over in the US with the FHFA house price index for November (+0.5% mom vs. +0.4% expected; +0.3% previous) as the only data of note.

Turning to the day ahead today we’ll see the February GfK consumer confidence reading out of Germany (10 expected; 9.9 previous) and the advance Q4 GDP reading in the UK (+2.1% YoY expected vs. +2.2% Q3). We have a busier day over in the US with preliminary wholesale inventories data (+0.1% expected; +1.0% previous) and the Chicago Fed National Activity Index reading (-0.05 expected; -0.27 previous) for December due, followed by weekly jobless claims data and the flash PMIs for January (services: 54.4 expected vs. 53.9 previous; composite: 54.1 previous). We close out the day with readings from the Conference Board leading index for December (+0.5% expected; 0.0% previous) and Kansas Fed manufacturing survey for January (8 expected; 11 previous).

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