European stocks hit four-month high and euro rallies after recovery deal - as it happened

Graeme Wearden

from Economics | The Guardian on 2020-07-21 16:34 (#55Z1G)

Rolling coverage of the latest economic and financial news, as European stock markets hit five-month highs

5.32pm BST

The euro's rally to an 18-month high tonight is partly due to the US dollar weakening, as the single currency is flat against the pound at 1.1069 (or 90.3p).

But it also shows relief that EU leaders signed off a 750bn Covid-19 rescue package overnight.

Europe has agreed a 750bn recovery fund, with a majority of the funds provided as grants, underpinning a stable and more balanced recovery, and a positive outlook for European assets....

Overall, we see the recovery fund - joint issuance to finance transfers at scale to the worst impacted countries - as a game changer for Europe, supporting a synchronised recovery and stronger growth over a sustained period, while making monetary union more stable and the euro more attractive.

Euro surges to 18-month high just shy of US$1.15 after $750 bln EU Recovery Fund agreed - up 7.5% from the March low pic.twitter.com/WJfU3qAKIF

5.22pm BST

Late newsflash: The Euro has now hit an 18-month high against the US dollar, reaching $1.15 for the first time since January 2019.

Euro rises to $1.1497, strongest level since Jan. 2019 after European Union leaders agreed on a stimulus package to reboot pandemic-hit economies. pic.twitter.com/9I6bnZWNHc

5.09pm BST

Finally....the strong rally in Europe's stock markets faded in late trading, as the jump in the value of the euro and the pound hit stocks.

But European stocks have still closed at their highest level since early March, as the recovery from the Covid-19 slump continued.

The agreement from EU leaders on the EU recovery fund was welcomed news; despite a rocky start, it ultimately showed unity among the block and commitment to get a deal through. The total size of the package at 750bn is significant and despite some complexity when breaking down the details this will give a further boost to the post-Covid 19 recovery in the Eurozone.

The agreement is also yet another confirmation that leaders from both a fiscal and monetary standpoint stand ready to do whatever it takes to support the economy. In light of the extraordinary stimulus, improving sentiment and macro picture, we remain constructive on growth-orientated assets and believe in the V shape recovery scenario. We have reduced our bond exposure and remain friendly towards credit and equities.

4.08pm BST

The US dollar is now coming under pressure, losing ground against major currencies.

This has pushed the euro up to $1.1486 (a new four-month high). Sterling has risen to a six-week high, at $1.275.

The US dollar had been strong for the best part of a decade, but since its March high the currency has been falling.

A combination of stimulus from the Federal Reserve creating more US dollars, low savings, and high levels of government debt could mean a weaker US dollar is here to stay. That would be good news for emerging markets where companies borrow in US dollars, as a weaker currency makes their borrowing costs cheaper.

3.56pm BST

Tech companies aren't immune to the Covid-19 recession, of course.

Microsoft, for example, is cutting 960 jobs at its LinkedIn business, which has suffered from the slump in vacancies.

3.12pm BST

In other tech news, Apple has pledged to be 100 percent carbon neutral across its business, supply chain and product cycle by 2030.

The technology giant's corporate operations are already carbon neutral, but it's now pledging that within a decade every Apple device sold will have net zero climate impact.

3.02pm BST

The US S&P 500 index has also rallied, and is now up over 1% for this year. Quite a recovery....

...but not compared to the Nasdaq, which is actually up 20% this year, as traders have poured money into tech stocks.

Amazon Inc is surely a candidate for the eighth wonder of the world. It is a manmade creation that has so far defied the laws of finance.

The share price return of 199,908% since its IPO in 1997 (from a split adjusted share price of $1.50 to $3,000), equating to 39% compound annual return, is only part of the story.

If the trajectory continues it would truly make Amazon the eighth wonder of the world. For investors, I think it is one safer watched from the side lines.

2.46pm BST

Wall Street has joined the rally, with the Nasdaq index hitting yet another record high in opening trading.

The tech-heavy Nasdaq composite index gained 0.7% at the open.... although it's then dipped back a little.

Stocks open higher as European leaders agree to stimulus, earnings season rolls on
-Dow adds 184 points, 0.7%
-S&P 500 up 20 points, 0.6%
-Nasdaq opens about 71 points higher, up 0.7%#DOW #US30 #SPX500 #NASDAQ #MarketWatch

The virus data in the US suggests coronavirus cases are peaking, California, Florida, Georgia and North Carolina showed meaningful declines.....

The case curve seems to be flattening and hospitalizations continue to trend lower. President Trump also reversed his stance on masks and tweeted an image of himself wearing a face mask and indirectly called it patriotic. Over half of the US has mandatory mask orders in place. Trump's troubling poll numbers have created a sense of urgency in changing the narrative so it is no surprise he is also bringing back his 5pm coronavirus task force briefings.

2.28pm BST

In another step towards normality, fast food chain McDonald's will reopen around 700 dine-in restaurants across the UK from Wednesday.

My colleague Rebecca Smithers has the details:

Food will be served by table service only with customers able to order directly via the My McDonald's app, at the till or kiosk. Diners will also need to leave their contact details - using their phone to scan a QR code or visiting a dedicated webpage - in line with government guidance.

The fast food giant said its restaurants will also be taking part in the Eat Out to Help Out" scheme from the chancellor when it starts next month.

MCDONALD'S UK SAYS OVER 700 RESTAURANTS WILL REOPEN FOR DINE-IN WEDNESDAY, ACROSS UK AND IRELAND

2.02pm BST

Oil has hit a four-month high today, as optimism about the economic outlook drive up energy prices.

Brent crude has gained 2.75% today, or $1.2 per barrel, to $44.47. That's the highest since early March.

Brent crude breaking through $43.91 resistance here. Fresh 4-month high here as we look for a potential bullish triangle breakout #OOTT pic.twitter.com/ucL7SRvxQV

1.56pm BST

Fiona Frick, chief executive of Unigestion, reckons investors will be happy to lend to the EC, to fund its 750bn recovery fund.

Speaking on Sky News, she says Brussels will be seen as a solid borrower when it taps the debt markets, to fund grants and loans to help members recovery from Covid-19.

For the first time there will be a union of countries in Europe in a merger of credit risks. It makes the euro a stronger currency, and make the European block an extremely solid borrower.

1.45pm BST

Hetal Mehta, senior European economist at Legal & General Investment Management is hopeful that this morning's deal on the EU Recovery Fund will bring calm to the region.

The deal reached on the EU Recovery Fund is historic and a step toward debt mutualisation that was thought highly unlikely just a few months ago.

Within the compromises, there was something for everyone; the Frugal Four will get large rebates and lowered the split of grants versus loans while the overall size at 750bn was unchanged. By showing determination and stepping up to the unique challenge posed by the coronavirus, EU leaders will hope this eases political tensions in the years to come."

Importantly, the governance of the Recovery Plan has been made more complex. While no member state has a veto power to stop the distribution of aid to another member state, the newly adopted super emergency brake' gives any member state the power to oppose a recovery plan, requiring a decision by EU finance ministers or EU leaders. This could result in delay to disbursements. In addition, a weighted majority of EU governments could decide to suspend disbursements altogether to a country in case of evidence of the rule of law violations.

Despite the compromises involved, the agreement on the Recovery Fund sends a strong political signal which could mark a new chapter in the Union's history. EU bond issuance will create a precedent which could become a permanent feature of the institutional framework going forward. With fiscal policy finally stepping up to facilitate the post-COVID recovery, the ECB is no longer the only game in town'. This powerful combination of monetary and fiscal policy, as well as the strong political will to not just ensure the union's survival but indeed its success on a number of dimensions, now has the potential - perhaps higher than ever - to lead to more superior economic outcomes in the years ahead."

The collective will to keep the European monetary union alive has proved resilient through the global financial crisis, the European sovereign debt crisis, the second Greek debt crisis and Brexit. The structural framework of the monetary union improved after each test, and Jean Monnet's mantra that Europe will be forged in crisis" looks like it will still hold true this time, after a very rocky start.

COVID-19 has been an external shock that exposed the flaws in the EU's institutional framework, but its nature rendered arguments about moral hazard null and void. Europe's silver lining in this tragic crisis may be that these shortcomings are now being addressed.

1.19pm BST

Here's our news story on Robinhood cancelling its UK launch, by Rob Davies.

1.02pm BST

The US S&P 500 is on track to hit a new five-month high - a day after it turned positive for the year.

SPX breaking free from the Jun range tops and next stop could be all-time high...seems craazeeee pic.twitter.com/bAO5ddpAs9

12.43pm BST

The price of gold has climbed to a nine-year high today and it may only be a matter of time" before the gold market reaches a record high, analysts believe.

The spot market price for the safe haven' commodity surged past highs last seen in September 2011 to reach $1,827 per ounce this lunchtime.

12.34pm BST

Drinks giant Coca-Cola has reported that sales slumped in the pandemic, but it's optimistic that the worst is over.

We believe the second quarter will prove to be the most challenging of the year; however, we still have work to do as we drive our pursuit of Beverages for Life' and meet evolving consumer needs.

12.16pm BST

In another sign of the time, investors are prepared to pay to lend to the UK - even though the country is borrowing at a historic pace.

The Debt Management Office sold 3bn of six-year UK government bonds this morning at an average yield, or interest rate, of -0.064%. That means investors will receive slightly less than the price paid today.

Investors still happily queue to lend the UK government money, some even pay to. Debt Management Office has this morning raised 3 billion. The bond is repayable over six years and was over-subscribed (2.6 times covered). Effective interest rate was -0.06% (negative). pic.twitter.com/yLis5fzYG5

11.56am BST

Robinhood will not be riding through the City anytime soon after all.

The smartphone stock trading app, which has shaken up Wall Street, has just announced that it has taken the difficult decision" to postpone its UK launch indefinitely, and take down its UK website.

The world has changed a lot over the past several months and we're adapting with it. On a company level, we've come to recognise that our efforts are currently best spent on strengthening our core business in the US and making further investments in our foundational systems.

Since we announced our intent to launch in the UK, we've been fueled by your excitement for Robinhood and humbled by your response. We're sorry that we cannot deliver the product we promised you this year.

11.35am BST

The US stock market is also on track to rally, when it opens in three hours time.

That would propel the Nasdaq to a fresh record high, as investors clamour to buy big tech stocks.

BREAKING:

*U.S. STOCK INDEX #FUTURES POINT TO HIGHER OPEN AS WALL STREET EYES MORE STIMULUS, LATEST EARNINGS

*DOW FUTURES GAIN 170 POINTS
*S&P 500 FUTURES RISE 0.7%
*NASDAQ FUTURES JUMP 0.9%

TRACK THE ACTION IN REAL-TIME: https://t.co/c2YtNoxoA3 $DIA $SPY $QQQ $IWM $VIX pic.twitter.com/TzQ4xXHwR4

11.25am BST

The German stock market has been on a remarkable ride this year.

The DAX touched a record high in February 2020, before plunging almost 40% to its lowest level since 2013.

The Dax index of German blue-chip stocks rallied nearly 2 per cent on Tuesday, to produce a gain so far this year of 0.4 per cent. It had been down more than 35 per cent during the darkest days of March. Investors also snapped up the debt of EU countries that have endured an especially hard hit to their public finances from the virus.

The reaction suggests that the EU has surpassed investors' expectations and laid the framework for tighter co-ordination on fiscal policy in its efforts to overcome the impact of the coronavirus pandemic.

11.08am BST

A few photos from the climax of the EU summit:

Conte at 5am in the morning pic.twitter.com/pAfLjadUrC

10.57am BST

Perhaps surprisingly, the euro hasn't kicked on today, now the EU Recovery Fund is in the bag.

The single currency is hovering around $1.144 against the US dollar, having hit a four-month high yesterday.

The positive conclusion of the marathon Brussels summit will be a relief to many market participants who's hopes were pinned on the agreement of the 750bn recovery fund.

Although the euro initially sold off in the aftermath in what appears to be a classic case of buy the rumor, sell the fact, many will welcome the developments and view the intraday weakness as an opportunity to buy a ticket for a long-term euro rally."

10.04am BST

Although the markets are celebrating, there's real disappointment that the EU deal includes cuts for some key projects, and little direct support for the climate emergency.

One of the biggest losers is the Just Transition Fund, which was downgraded from the Commission's 40 billion climate action war-chest to just 10 billion, illustrating how low down the pecking order environmental policies ultimately fell during the talks.

The final deal maintained the stipulation that only countries that have signed up to the EU-wide goal of climate neutrality by 2050 will be eligible for funding.

Cuts to clinch deal, compared to initial Commission proposals:
- Horizon 2020 [research] 13.5bln -> 5bln
- InvestEU [business investment incentives] 30bln -> 5.6bln
- Rural development 15bln -> 7.5bln
- Just Transition Fund [climate transition subsidies] 30bln -> 10bln pic.twitter.com/rNCZnUnZJh

Here's a big one: EU4Health, a plan to create strategic medical stockpiles, a pan-EU medical response force, strengthen health systems and improve warning systems for epidemics, is largely axed.
9.4bln -> 1.7bln
(Initial proposal is here https://t.co/AeuI8ZuqCV) pic.twitter.com/MRGj5nl59S

9.20am BST

Today's tide of optimism has just driven the German stock market into positive territory for 2020 -- quite an achievement, given the year we've had.

The agreement is a classic EU fudge that papers over the schisms but is nonetheless a step forward towards ever closer union, and this time it's fiscal.

This has been hailed as Europe's Hamiltonian moment' as it involves mutual debt issuance. It's not quite that - we are not talking about mutualisation of countries existing debts. Nevertheless, it sets an important precedent in securing the idea of fiscal coordination, if not union. Italian yields fell to their lowest level in months...

9.16am BST

Italian government debt is strengthening, as bond traders hail the EU recovery fund deal.

This has pulled the interest rate, or yield, on Italy's 10-year bonds to just 1.05%, the lowest since early March.

8.57am BST

The cost of the coronavirus pandemic is clear to see in the latest UK public finances, released this morning.

The UK borrowed 35.5bn to balance the books last month, around five times as much as in June 2019. That increase was driven by stimulus measures such as the furlough scheme, and increased healthcare costs.

The government has been forced to borrow almost 130bn between April and June to combat the coronavirus pandemic, more than double the amount it did over the whole of last year.

Setting out the scale of the economic shock unleashed by the virus, the Office for National Statistics said public borrowing in the first quarter of the 2020-21 financial year jumped to 127.9bn, the highest quarterly sum since comparable records began in 1993.

8.33am BST

Ouch. Shares in gambling company GVC, which owns Ladbrokes Coral, have tumbled by 8% after it told the City it is being probed by the UK tax authorities.

The investigation relates to GVC's former Turkish facing online gambling business.

HMRC has not yet provided details of the nature of the historic conduct it is investigating, with the exception of a reference to section 7 Bribery Act 2010, nor has it clarified which part of the GVC group is under investigation.

8.25am BST

The UK stock market is lagging behind its perky continental rivals today, but at least it's managed a small gain.

The FTSE 100 index has risen by 29 points, or 0.5%, to 6291. Travel and hospitality companies are among the risers, reflecting optimism that a vaccine could help the economy to fully reopen.

8.21am BST

Take note, investors. Professor Sarah Gilbert, who is leading the Oxford vaccine trial, says there's no certainty that it will be rolled out this year - but it might.

Reuters has the details:

The end of the year target for getting vaccine rollout, it's a possibility but there's absolutely no certainty about that because we need three things to happen," Sarah Gilbert told BBC Radio, saying it needed to be shown to work in late stage trials, there needed to be large quantities manufactured and regulators had to agree quickly to licence it for emergency use.

All of these three things have to happen and come together before we can start seeing large numbers of people vaccinated."

8.14am BST

Italy's FTSE MIB index has surged by 1.5% to a four-month high, as traders celebrate the prospect of billions of euros of grants to help fund its recovery.

Prime minister Giuseppe Conte sounds optimistic too, saying that the package of grants and loans will help his government to change the face of the country."

Now we have to run and use these funds for investments and structural reforms. We have a real chance to make Italy greener, more digital, more innovative, more sustainable, inclusive.

We have the chance to invest in schools, universities, research and infrastructures."

8.09am BST

In Frankfurt, Germany's DAX index has surged by 1% to its highest level since February 24th.

That was the first day of the Covid-19 market crash, which began after Italy imposed local lockdowns, in a desperate bid to control the virus.

8.06am BST

Ding ding! Europe's major stock markets are open, with gains across the board.

The EU-wide Stoxx 600 has jumped 0.7% in early trading, hitting its highest level since March 5 (when markets were wobbling).

7.52am BST

Asia-Pacific stock markets are all showing gains today.

Australia's S&P/ASX 200 is the top performer, up 2.5%, while South Korea's KOSPI 200 has gained 1.5%.

Encouraging results from Oxford's vaccine candidate, in addition to EU leaders agreeing to a 750 billion Recovery Fund is overshadowing rising tension between the UK and China and soaring covid numbers in California.

As the marathon EU leaders' talks entered the fifth straight day, an agreement was finally reached. The EU Recovery Fund will be 390 billion in grants and the remaining 360 billion in loans to help those countries most affected by the coronavirus pandemic and help the region out of its deepest recession since World War 2. Italy, Spain and Poland are set to gain the most after leaders compromised over the proportions of the fund which would be grants and or loans to please the frugal four. This is being hailed a historic moment for the EU, which is more than a little late to the stimulus party. However, given the boost to risk sentiment this is definitely a case of better late than never.

7.48am BST

Here's our Brussels team Daniel Boffey and Jennifer Rankin on the EU recovery fund deal:

The deal was hard won and the negotiations divided north against south, and east against west, as governments haggled over the terms of both the bloc's seven-year budget and an one-off economic stimulus.

The summit, stretching from Friday morning into the early hours of Tuesday, was so prolonged that two leaders, Xavier Bettel of Luxembourg and Ireland's Micheal Martin, had to briefly return home before coming back to Brussels.

7.28am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

This is a good deal, a strong deal, the right deal for Europeans now. I believe this will be seen as a pivotal moment on Europe's journey."

The recovery fund is meant to tackle the fallout of an unprecedented pandemic but the only instrument meant to support the health sector was scrapped entirely and Horizon Europe, designed to boost innovation, suffered severe cuts as well'. https://t.co/ZATDpVqjkH

After intensive research, Prof Sarah Gilbert, from Oxford's Jenner Institute, said they were more than happy with the first results, which showed good immunity after a single dose of vaccine.

We're really pleased that it seems to be behaving just as we thought it would do. We have quite a lot of experience of using this technology to make other vaccines, so we knew what we expected to see, and that's what we have seen," she told the Guardian.

Tuesday's Guardian: "Hopes of Covid vaccine rise after UK study hailed as breakthrough" (via @hendopolis) #TomorrowsPapersToday #BBCPapers pic.twitter.com/eijm7iuxxJ

Tuesday's Mirror: "Vaccine by Christmas" (via @hendopolis) #TomorrowsPapersToday #BBCPapers pic.twitter.com/ekAZSZt3tS

Risk assets are moving to the vaccine pump's beat after it was raining positive vaccine trials overnight, and investors are still dancing in that rain.

Ebullience around positive vaccine and the recent round of robust macro data continues to float markets in rough seas. The worsening outlook on the virus front continues to churn in the background. But the fear of the virus is less than it was, so the economic beat down is expected to be less this time around.

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