Risk appetite improves at the end of a choppy week

US stocks and industrial commodities were on a high at the end of a week dominated by worries over forthcoming European elections, which was replaced by renewed bullishness about the policies of US President Donald Trump. This more confident mood was also driven by optimism about corporate earnings and evidence of strong trade growth in China.

In New York, the S&P 500 equity index rose 0.4% to a record closing high of of 2,316, after earlier hitting an intraday all-time peak of 2,319.23 on Friday. For the week, the benchmark measure was 0.8% higher. The Dow Jones Industrial Average and the Nasdaq Composite also hit all-time highs while the small-cap Russell 2000 neared record levels.

In Europe, the Stoxx 600 index rose 0.2% for a five-day gain of 0.9%. The Tokyo market stood out as the Nikkei 225 rallied 2.5% on Friday, securing its biggest weekly rise since early December.

The end-of-week rally for riskier assets was largely triggered by Mr Trump’s promise on Thursday of a “phenomenal” announcement on taxes in the next few weeks — potentially at his February 28 State of the Union address to Congress. However, some analyst cautioned that considerable uncertainty remained.

Meanwhile, a further boost to risk appetite came from news that Mr Trump had told China’s President Xi Jinping that he would respect the “One China” policy — soothing concerns in the market about potential tensions between the two countries

On the fixed income side, government bond markets this week were dominated by a jump in the yield premium demanded by investors to hold French rather than German debt. Indeed, the spread between 10-year French and German yields reached the highest for more than four years at the start of the week amid concerns about the possibility of a presidential election victory for Marine Le Pen, the anti-EU and eurozone far right candidate.

The yield on the 10-year US Treasury was up 1bp at 2.4% on Friday, but down 8bp for the week.