Global stocks jumped and US equity futures spiked in light overnight trading, after President Trump unexpectedly signed the $2.3 trillion spending package on Sunday evening and as investors continued to celebrate a last-minute trade deal clinched between Britain and the European Union.
By backing off from his previous threat to block the bipartisan bill, Trump allowed millions of Americans to continue receiving unemployment benefits and averted a federal government shutdown. The stimulus “could be supportive of the market, supportive of the U.S. economy,” said Suresh Tantia, strategist at Credit Suisse Group AG. “Next year all the building blocks are there for markets to continue this rally.”
“As the coronavirus pandemic has shown little sign of abating, the emergency aid was needed to avoid a sharp slowdown in the economy during the first quarter,” said Nobuhiko Kuramochi, market strategist at Mizuho Securities. “It would have been unsettling if we hadn’t had it by the end of year,” he added.
The rollouts of COVID-19 vaccines were also bolstering hopes of more economic normalisation next year, with Europe launching a mass vaccination drive on Sunday, which however has been met with rising skepticism. Despite aggressive vaccine rollouts, more restrictions are being imposed to fight the spread of the new, more infectious strain. Japan is among the latest to act, banning the entry of most foreigners through the end of January. Meanwhile, the European Union kicked off a continent-wide vaccination campaign less than a week after clearing a shot developed by Pfizer Inc. and BioNTech SE.
The MSCI world index rose 0.3% boosted by strong opening gains in Europe and a positive session in Asia overnight, although trading was thinner due to the holiday season.
The euro STOXX index rose 0.9% in the first trading session after London and Brussels signed an eleventh hour deal on Thursday evening that preserves zero tariff access to each other’s markets. Germany’s DAX Index climbed to a record while British markets were closed for the Boxing Day holiday.
“We can finally move on from the Brexit drama,” said Win Thin, global head of currency strategy at Brown Brothers Harriman. “After the last-minute deal was struck last week, the UK parliament will vote on the deal Wednesday. With (opposition party) Labour promising its support, it should pass handily,” he added.
Earlier in the session, Asian stocks rose after capping their first weekly drop in two months Friday. Stock markets in Indonesia, Taiwan and India led a broad regional advance as the MSCI Asia Pacific Index climbed 0.4% with Japan’s Nikkei advancing 0.7% and China also rising, helped by strong industrial profit data. Gains in Samsung Electronics and Taiwan Semiconductor Manufacturing helped a gauge of regional technology names rally more than 1%. IT was the best-performing sector even as Alibaba tumbled, leading a selloff in Chinese tech giants, triggered by fears antitrust scrutiny will spread beyond Jack Ma’s Internet empire.
An index of Asian communication services stocks was the sole loser among industry groups. Tencent Holdings slid more than 6% to be the biggest drag on the measure. Meanwhile, utilities and finance were the other top-performing industry groups in Asia Monday. Stocks in the Philippines and Thailand bucked the region’s rising trend amid concerns over virus outbreaks and related restrictions in those countries. Philippine President Rodrigo Duterte said he’s open to reinstating tighter movement curbs if coronavirus infections spike. Markets in Australia and New Zealand remained closed for holiday.
In FX, the dollar fell 0.2% to 90.028; analysts believe the dollar will stay under pressure as investors bet on a prolonged period of loose U.S. monetary policy. The euro was up 0.1% at $1.2206, a tad below its 2-1/2-year high of $1.22735, while the yen changed hands at 103.41 per dollar. The British pound slumped in anticipation of the EU-UK trade deal, as traders sold the news pushing cable to 1.3487, down 100 pips on the session.
In rates, 10-year yields rose to 0.9581% and 10-year German bund yields inched lower to -0.550%. Treasuries opened lower with the curve steeper after Trump relented on the stimulus deal, with a compressed Treasury auction cycle (2- and 5-year notes Monday, 7-year notes Tuesday) totaling $176 billion is an additional headwind. Yields are higher by nearly 4bp at long end, leaving 2s10s and 5s30s spreads wider by 2bp-3bp; 10-year ~0.955%, 3bp cheaper vs. Dec. 24 close
In commodities, oil prices rose, with Brent crude futures up 0.7% at $51.67 per barrel and U.S. crude futures up 0.8%. Precious metals were flat despite gold rising 1.3% at one point to a one week high as investors welcomed Trump’s signing of the pandemic aid bill, with a weaker dollar lending further support. However, they have since given up all gains. One can't say the same thing for cryptos however, with the entire sector continuing its relentless surge higher. Bitcoin, which hit a new record high over the weekend, was up 2.2% at $26,876, bringing the total value of the cryptocurrency in circulation to over $500 billion.
No major economic data releases or U.S. company earnings are expected.
- S&P 500 futures up 0.6% to 3,716.75
- STOXX Europe 600 up 0.6% to 398.31
- German 10Y yield unchanged at -0.547%
- Euro up 0.4% to $1.2239
- Brent Futures up 1.1% to $51.83/bbl
- Italian 10Y yield unchanged at 0.474%
- Spanish 10Y yield fell 0.5 bps to 0.068%
- MXAP up 0.4% to 195.53
- MXAPJ up 0.08% to 644.47
- Nikkei up 0.7% to 26,854.03
- Topix up 0.5% to 1,788.04
- Hang Seng Index down 0.3% to 26,314.63
- Shanghai Composite up 0.02% to 3,397.29
- Sensex up 0.8% to 47,353.04
- Australia S&P/ASX 200 up 0.3% to 6,664.77
- Kospi up 0.06% to 2,808.60
- Brent Futures up 1.1% to $51.83/bbl
- Gold spot down 0.01% to $1,883.24
- U.S. Dollar Index down 0.2% to 90.03
Top overnight news from Bloomberg
- Prime Minister Boris Johnson said major changes are coming in the U.K. as the result of the trade deal his government negotiated with the European Union, completing the country’s separation from the bloc, the Telegraph reported. Major Issues the Brexit Deal Leaves Unresolved
- A coordinated vaccination campaign is under way in Europe, just days after the European Union cleared a shot developed by Pfizer Inc. and BioNTech SE. The U.K. could clear AstraZeneca Plc’s vaccine as early as this week
- Japan’s industrial production failed to eke out an overall gain in November, slowing more than expected from previous advances amid a resurgence in the coronavirus at home and abroad
- Oil fell in Asian trading as pessimism over a new strain of Covid-19 that’s threatening more travel restrictions outweighed the passage of a U.S. stimulus bill into law
US Event Calendar
- 10:30am: Dallas Fed Manf. Activity, est. 10.2, prior 12