Markets

Euro moves to a four-month high as Covid-19 stimulus progresses

European bond spreads narrowed as regional leaders negotiate historic package

Mon Jul 20 2020 - 13:58

The euro strengthened to a four-month high and European bond spreads narrowed as leaders made progress in negotiating a historic stimulus package.

Italy’s 10-year bond yield spread over Germany, a key gauge of risk in the region, fell to the lowest level since March. Trading in US equity futures was mixed with the S&P 500 coming off a three-week rally. European shares fluctuated as travel companies and oil producers slid. AstraZeneca gained ahead of highly anticipated results from early vaccine studies. Oil extended losses toward $40 a barrel.

The S&P 500 and Dow indexes were set to open lower on Monday as concerns about a jump in Covid-19 cases curbed risk appetite, with investors also hoping for more stimulus to shore up a battered global economy. The Stoxx Europe 600 Index was unchanged. The Dublin market dipped 0.2 per cent , before recovering some of those losses to trade almost flat by early afternoon. The Ftse 100 fell 0.48 per cent.

In Europe, leaders appeared close to reaching an agreement on a rescue package. The four governments that have been holding up negotiations are ready to agree on a key plank of the deal, two officials said. The Netherlands, Austria, Denmark and Sweden are satisfied with €390 billion of the fund being made available as grants with the rest coming as low-interest loans, the officials said, asking not be named discussing private conversations.

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“Our base case is a deal is done by the end of the month, but I still think today is possible,” said James McCormick, the global head of desk strategy at NatWest Markets. “The euro’s broad-based rally was a big macro story last week and it clearly reflected a growing optimism around eventual passage of the recovery fund.”

While stock markets have inched higher in recent weeks, there are still plenty of worries about the health of the global economy, especially with the virus spreading unabated in parts of the US In the euro area, unemployment could hit almost 10 per cent by the end of the year as the economy slumps, according to a Bloomberg survey.

Los Angeles Mayor Eric Garcetti has warned that the city is on the brink of another stay-at-home order. Hong Kong added a record 108 infections, will require civil servants to work from home and plans to mandate wearing of masks in all shared indoor areas.

“The economic dislocation of Covid-19 triggered a tremendous response by fiscal and monetary policy makers as well as central banks,” said Gene Tannuzzo, a portfolio manager at Columbia Threadneedle. “These measures helped to stabilise markets, yet we still find ourselves in an environment of continuous low growth.” – Bloomberg

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