Market Overview

Revived Brexit hopes lift stocks and sterling

Stocks began the week with robust gains as investors gauged the chance of added U.S. fiscal and monetary stimulus, while the British pound rose as a last-gasp extension to Brexit talks dodged a difficult divorce.

Europe opened with stocks up 0.75% and the euro up on the dollar after London and Brussels agreed on Sunday to “go the extra mile” to try to reach a trade agreement.

Progress on coronavirus vaccines also cheered risk sentiment, with the first doses shipping across the United States as part of an effort to inoculate more than 100 million people by the end of March.

“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 0.5%, while March Treasury bond futures slipped 4 ticks. EUROSTOXX 50 futures added 0.5% and FTSE futures 0.1%.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged 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, 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 $1.3382 from Friday’s close of $1.3222. The euro slipped 0.9% versus the UK currency to 90.73 pence, off a three-month top of 92.29.

The euro was up 0.3% on Monday at $1.2150 and within striking distance of its recent 31-month top of $1.2177. The dollar index stood at 90.622, 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.

Oil prices rose on Monday; it has now rallied for six weeks straight as investors priced in a global recovery next year. U.S. crude rose 33 cents to $46.90 a barrel. Brent crude futures rose 39 cents to $50.36. 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.

Revived Brexit hopes lift stocks and sterling, Reuters, Dec 14

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