Revived Brexit hopes lift stocks and sterling
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[December 14, 2020] By
Marc Jones
LONDON (Reuters) -Stocks began the week
with robust gains as investors gauged the chance of added U.S. fiscal
and monetary stimulus, while Britain's pound jumped on the last-gasp
extension to Brexit talks.
News that London and Brussels had agreed to "go the extra mile" to try
to salvage a Brexit trade agreement lifted Europe's main shares indexes
1% and also pushed the euro up against the struggling dollar. [.EU]
"We are going to give every chance to this agreement ... which is still
possible," the European Union's Brexit negotiator, Michel Barnier, told
journalists before updating envoys from the 27 EU countries on Monday.
"Two conditions aren't met yet. Free and fair competition ... and an
agreement which guarantees reciprocal access to markets and waters. And
it's on these points that we haven't found the right balance with the
British. So we keep working."
Progress on coronavirus vaccines also cheered risk sentiment, with the
first doses being shipped across the United States as part of an effort
to inoculate more than 100 million people by the end of March.
That was despite the second waves of the pandemic forcing Germany, the
Netherlands and possibly London back into stricter lockdowns, and surges
in cases in Japan, South Korea and parts of the United States too.
"The vaccine has and will likely continue to provide a tailwind to the
market that is allowing investors to look beyond record case levels,
hospitalisations, and deaths," analysts at JPMorgan said in a note.
E-Mini futures for the S&P 500 responded by rising 0.8% led by travel
stocks [.N], while March Treasury bond futures slipped 4 ticks and
Europe's government debt yields inched off recent record lows. [GVD/EUR]
MSCI's broadest index of Asia-Pacific shares outside Japan ended up
0.1%, after a string of record highs last week.
Japan's Nikkei rose 0.3% as a survey showed the mood among Japanese
businesses had improved in the December quarter.
Sterling was the day's big mover though, gaining on both the euro and
the dollar as what last week had appeared to be evaporating prospects of
a Brexit agreement, came back to life.
Against the dollar, the pound rose 1.5% to $1.3423 from Friday's close
of $1.3222. The euro slipped 1.1% versus the UK currency to 90.53 pence,
off a three-month top of 92.29.
"Even in the face of amped up rhetoric, we continue to think a deal is
the most plausible outcome," said AXA Group chief economist Gilles Moec.
At this stage, he said, failure would probably stem from either Brussels
or London pushing the envelope a bit too far, too late to get an
agreement done in time.
"From this point of view, the fact that no new deadline has been tagged
on the latest round of talks is positive in our view," he said.
That could see the euro climb to 96.00 pence, analysts at Goldman Sachs
said in a note; a deal could send the pound rallying to 87.00 per euro.
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A man wearing a
protective face mask is reflected on a stock quotation board outside
a brokerage, amid the coronavirus disease (COVID-19) outbreak, in
Tokyo, Japan November 10, 2020. REUTERS/Issei Kato
FED AHEAD
The single currency has already been gaining against the dollar, which many
analysts believe has entered a cyclical downtrend as near-zero U.S interest
rates and the prospect of a vaccine-driven global economic recovery lessens the
need for safe havens.
The euro was up 0.35% on Monday at $1.2155 and within striking distance of its
recent 31-month top of $1.2177. The dollar index stood at 90.528, near its
recent trough of 90.471.
An added hurdle for the dollar will be the Federal Reserve's policy meeting on
Dec. 15-16. The market is assuming the central bank will merely refine its
forward guidance on policy rather than buying more bonds or "twisting" its
portfolio to add more longer-dated debt.
The Bank of England on Thursday and the Bank of Japan on Friday will close out
the central banks meetings for 2020 this week. Before that, Wednesday sees the
global flash PMIs and Tuesday sees China’s monthly data dump.
"The risk is then if the Fed does unveil a surprise twist at this meeting, then
Treasuries could rally and the USD could fall," said Tapas Strickland, a
director of economics at NAB.
An extra wrinkle is the chance of a U.S. deal on fiscal stimulus after a top
Democrat hinted a compromise was possible to get an agreement past Republican
objections.
Reuters reported a $908 billion relief plan would be split in two to win
approval and could be introduced as early as Monday.
The talk of stimulus helped put a floor under gold, leaving it lower at $1,836
an ounce. Gold has gained more than 21% this year.
Oil prices rose on Monday; it has now rallied for six weeks straight as
investors priced in a global recovery next year. [O/R]
U.S. crude rose 47 cents to $47.04 a barrel. Brent crude futures rose 52 cents
to $50.49. Iron ore, which has surged 21% since the start of December, dropped
over 2% though.
Analysts at Deutsche Bank said it was likely to be caused by a call from one of
China’s leading mills group for authorities to investigate ore's rally after
allegations of illegal activities.
(Reporting by Marc Jones; Editing by Larry King and Alison Williams)
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