LONDON (Reuters) – Bets on more stimulus from the European Central Bank kept major European exchanges and the euro stable on Thursday, but the British pound saw its steepest decline in nearly a month after that Brexit negotiations deteriorated overnight.
The session had been mixed for Asia amid a surge in coronavirus cases and the ejection of some Chinese stocks from the S&P Dow Jones indices, so there was little surprise when Europe had to hard to add to recent highs.
The pan-European STOXX 600 index was stable, although London’s FTSE 100 marked its eighth consecutive gain, Brexit uncertainty pushing the pound down 0.8% to just under $ 1.33 and 90.95 pence per euro. [/FRX]
The leaders of the European Union and the United Kingdom have given themselves until the end of the weekend to seal a new trade pact, with some $ 1 trillion in annual trade threatened with tariffs if not reach an agreement by December 31, when the transitional agreements expire.
There is clearly room for maneuver to keep talking, but there are still important points of divergence, Foreign Minister Dominic Raab told BBC TV. (On) Sunday, they must take stock and decide the future of the negotiations.
For the ECB, economists expect its € 1.35 trillion PEPP stimulus package to be extended by at least € 500 billion and its duration extended by six months until the end of 2022 , with even more oriented risks.
The bank will announce its policy decision at 12:45 GMT, followed by a press conference by ECB chief Christine Lagardes at 13:30 GMT. Traders will also listen to what she says about the nearly 14% rise in the euro since March.
The critical element is that there has been an impact on (eurozone) growth recently, said Shoqat Bunglawala, head of global portfolio solutions for EMEA and APAC at Goldman Sachs Asset Management, referring to the second wave of lockdowns.
We therefore expect to see additional support.
Eurozone government bond yields – which move inversely to price – have continued to decline. Italian 10-year yields fell to an all-time high at 0.53%. Spain and Portugal reached 0.013% and -0.022% respectively. [GVD/EUR]
In Asian trade, the MSCI’s largest index for the region fell 0.4%, with the Japanese Nikkei ending down 0.2%. Both are up over 60% from March lows.
Futures on S&P 500 were holding 0.1% higher, however, after the Nasdaq fell 2% on Wednesday, when US regulators sued Facebook, alleging the company had used its dominant position to buy or crush rivals, hurting competition.
S&P Dow Jones Indices then announced that it would remove 10 Chinese companies from its stock indexes and several more from its bond indexes overnight. It followed a decision by the outgoing Donald Trump administration to ban American investors from buying certain Chinese securities.
U.S. lawmakers have also been unable to resolve disagreements over aid to states and local governments that delay a larger spending program, despite having at least approved an interim government funding bill.
We have grown so fast that it makes investors cautious, said Michael McCarthy, chief strategist of brokerage firm CMC Markets in Sydney.
The decline in tech stocks was a bit of a concern, given that they have risen in all market weather conditions over the past six weeks, so seeing them pull away could indicate that there was consideration for a short-term corrective move.
Elsewhere, faith in recovery seems to be holding on. Brent oil futures rose 0.8% to $ 49.23 per barrel and US crude rose 0.9% to $ 45.96 per barrel. [O/R] Gold healed losses at $ 1,839 an ounce. [GOL/]
The Hungarian forint and the Polish zloty have made headway, hoping European Union leaders will strike a budget deal that the two Eastern European countries have threatened to veto. [EMRG/FRX]
We believe the market certainly has confidence in the sustainability of this recovery, said Goldmans Bunglawala.
Additional reporting by Tom Westbrook in Singapore; Edited by Larry King and Catherine Evans
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