January 25, 2021
Markets PAID

Stock Futures Point to Extended Rally

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U.S. stock futures rose on the first major trading day of 2021 on hopes that continued government stimulus and the rollout of coronavirus vaccines will bode well for equities.

Futures tied to the S&P 500 and the Dow Jones Industrial Average climbed about 0.4%, pointing to gains for both gauges after the opening bell. The benchmark indexes closed at record levels Dec. 31. Nasdaq-100 futures also added 0.4% Monday, suggesting a rise in technology stocks.

Investors are starting the new year on an optimistic note, amid expectations that the widespread rollout of coronavirus vaccines will allow economic activity to return to pre-pandemic levels. Stocks have been buoyed in recent weeks on such bets even as the pandemic continues to spread, with hospitalization rates in the U.S. climbing to a record high Sunday.

“There is still really bad news on the virus, but the market is looking through that because of the vaccines,” said Fahad Kamal, chief investment officer at Kleinwort Hambros. “We are certainly positively tilted, given the expected economic recovery, historically low interest rates, a lot of fiscal spending and monetary policy to come: all of that positivity remains.”

In premarket trading, Tesla climbed 2% after the electric-car maker said it delivered a record 499,550 cars last year, just shy of its half a million target.

Flir Systems
surged nearly 23% after
Teledyne Technologies
agreed to acquire the maker of sensing technology in a deal that values it at about $8 billion.

Fresh data on the health of the manufacturing sector added to the cheer on Monday. Factories in Asia and Europe increased their output as 2020 drew to a close, according to surveys of purchasing managers that showed strong rises in activity during December. The results of a similar survey of U.S. manufacturers, to be released at 9:45 a.m. ET, are expected to also point to a strong rise in activity.

“We’re going through renewed lockdowns, which is curtailing activity to some extent, but what we’ve seen through the pandemic is that manufacturing activity tends to hold up quite well,” said Sebastian Mackay, a multiasset fund manager at Invesco. “The manufacturing PMIs that we get today will probably be reasonably robust and give a certain indication that the economy is recovering.”

In bond markets, the yield on the benchmark 10-year Treasury note edged up to 0.930%, from 0.913% on Dec. 31.

The dollar weakened, with the WSJ Dollar index slipping 0.4%.

Paul Sandhu,
head of multiasset quant solutions for the Asia-Pacific region at BNP Paribas Asset Management, said he expected the dollar to continue weakening, pressured in part by a likely increase in U.S. spending on infrastructure and other potential stimulus measures.

Overseas, the pan-continental Stoxx Europe 600 rose 1.4%.

The U.K.’s FTSE 100 was the best-performing major index in Europe, jumping 2.7%. The trade deal struck on Christmas Eve between the U.K. and the European Union is likely delivering a boost to British stocks, Mr. Mackay said.

“A lot of the tail risks of a no deal [Brexit] have been removed now. This will lead people to start dipping their toes again in the U.K. market,” he said.

Among European equities, British gaming company
Entain
soared over 29% after it confirmed a takeover bid from
MGM Resorts International.
The offer values the company at £8.09 billion, equivalent to $11.06 billion.

Most major stock benchmarks in the Asia-Pacific region advanced by the end of the trading day. South Korea’s Kospi Composite led gains, rising almost 2.5%.

South Korea’s Kospi Composite Index gained almost 2.5% in the first day of trading in the new year.

South Korea’s Kospi Composite Index gained almost 2.5% in the first day of trading in the new year.

Photo: jung yeon-je/Agence France-Presse/Getty Images

China’s Shanghai Composite gained 0.9% by the close of trading, even after a private survey showed China’s manufacturing activity moderated in December due to weak demand for the country’s exports.

Ben Luk,
senior multiasset strategist at State Street Global Markets, said the data pointed to continued fragility in the Chinese economy. But he said that helped ease concerns that China’s central bank would act prematurely to tighten monetary policy.

The Chinese yuan strengthened, to trade below 6.5 per dollar, in the tightly controlled onshore market without any signs of state-backed institutions stepping in to halt the rally, said Ken Cheung, chief Asian foreign-exchange strategist at Mizuho Bank in Hong Kong. Mr. Cheung said that indicated that Chinese authorities were comfortable with further appreciation, and that in turn helped power further gains in the currency both onshore and offshore.

“Many investors are also convinced that China’s growth story will remain intact as other major global economies struggle with the pandemic,” Mr. Cheung said, adding that China’s faster growth and higher yielding assets could push the currency to 6.3 yuan a dollar in the first half of this year. The yuan hasn’t traded below 6.5 per dollar since the trade war began in 2018.

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Japan’s Nikkei 225 dropped 0.7% by the end of trading, and the yen strengthened against the dollar, after Prime Minister

Yoshihide Suga
said he might declare a state of emergency in Tokyo and surrounding areas as new coronavirus infections continue to rise.

Mr. Sandhu said markets in Asia had largely picked up where they left off in 2020, as investors continue to favor riskier assets like equities in emerging markets such as China, South Korea and Taiwan. He said he expected Asia to be one of the most robust parts of global markets, due in part to its relative success in containing the coronavirus.

Bitcoin, the most popular cryptocurrency, pared some of the gains it had registered during the New Year holiday break. It rose from below $29,000 on New Year’s Eve to a high above $34,500 on Jan. 3, according to CoinDesk data. On Monday, it stood at about $31,515.

“Investors globally are looking for new asset classes to invest in and bitcoin looks quite attractive because it is an uncorrelated asset class,” said Mr. Sandhu.

Write to Joanne Chiu at joanne.chiu@wsj.com and Anna Hirtenstein at anna.hirtenstein@wsj.com