“The relief rally in equity seems very strong. It also seems to have taken people off-guard,” said Arne Petimezas, analyst at AFS in Amsterdam
World stocks climbed to new record highs on Monday as a promising vaccine development from Pfizer and expectations global trade ties will improve under US President-elect Joe Biden boosted risk appetite.
Markets started to trade on the prospect of a Biden presidency last week, but the Democratic candidate's projected victory on Saturday gave more fuel to the move.
Further boosting sentiment was data showing that Pfizer's experimental vaccine was more than 90% effective in preventing Covid-19, potentially a big move forward in the fight against the pandemic.
The MSCI world equity index, which tracks shares in 49 countries, rallied after the news broke to reach another record high, up more than 1% on the day. On Friday, it posted its biggest one-week gain in nearly seven months.
"The relief rally in equity seems very strong. It also seems to have taken people off-guard," said Arne Petimezas, analyst at AFS in Amsterdam.
The pan-European STOXX 600 climbed almost 4% by 1203 GMT, back to February levels and driven by shares in sectors like airlines and travel. Among other risky assets, oil shot up nearly 8%, while safe-haven bonds and gold sold off.
E-mini futures for the S&P 500 also got a boost, jumping nearly 4% to a record high, although Nasdaq futures remained just under their all-time peak, up 1.7%.
Monday's vaccine progress reinforced expectations that the economic damage from the pandemic would be temporary, even if conditions could still weaken further.
"With Europe in lockdown, and lockdown risk in the US, near-term data is likely to look poor," strategists at French bank Exane led by Dennis Jose said.
"However, if a vaccine is approved, it opens up a scenario where consumers unleash their supersized savings, enabling investors to look through near-term weakness."
Earlier, MSCI's broadest index of Asia Pacific shares outside Japan jumped 1.4% after hitting its highest since January 2018 on expectations of easing trade tensions following the US election.
US President Donald Trump has not conceded defeat and is challenging the outcome of the vote but many current and past global leaders have already congratulated Biden.
"The die is cast," said Andrea Delitala, portfolio manager and head of euro multi-asset strategy at Pictet Asset Management in Milan.
"The US elections have returned a favourable scenario (for) investors, freeing them from the unpredictability of the leader of the world's leading economy ... a return of multilateralism is on the cards," he added.
Investors expect Republicans to maintain control of the Senate, making it harder for a Biden administration to push through major policy changes, from a planned tax hike to a big fiscal stimulus package.
That would mean better earnings prospects for companies exposed to the world's largest economy but also that the US Federal Reserve might have to step in to provide any further support the pandemic-hit economy may need.
Oil prices jumped as investors greeted the vaccine news and the prospect of a Biden victory, shrugging off worries about lacklustre demand. Brent prices added 8% to $42.6.
Spot gold fell 1.8% to $1,914.96 per ounce.
The dollar remained weak on expectations that monetary policy in the United States will remain easy and global trade relations improve.
After posting its biggest weekly loss in more than seven months on Friday, the dollar index was up 0.2% to just above a 10-week low, while growth and trade proxies such as the Australian dollar and the Chinese yuan remained in demand.
The euro, which climbed 1.9% last week, was up 0.1%. Sterling added 0.2% as the focus turned to Brexit trade negotiations which could come to a head with the European Union summit on Nov. 15.