Euro climbs amid stimulus talks; stocks erase decline

Bloomberg

The euro strengthened to a four-month high, and European bond spreads narrowed after leaders made progress in negotiating a historic stimulus package. European shares erased losses.
Italy’s 10-year bond yield spread over Germany, a key gauge of risk in the region, fell to the lowest level since March. US equity futures pointed to a weaker open. AstraZeneca Plc gained ahead of highly anticipated results from early vaccine studies. Oil extended losses towards $40 a barrel.
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 euros 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.
“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% 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.
“Our base case remains for the economic recovery to continue, but for the deep V rebound evident in much recent data to give way to a slower bumpier recovery going forward,” said Shane Oliver, head of investment strategy at AMP Capital Investors Ltd. “Shares are still vulnerable to a further correction or consolidation, with renewed lockdowns and the US presidential election being the main risks.”
Futures on the S&P 500 Index dipped 0.2% as of 9:51 am London time and the Stoxx Europe 600 Index climbed 0.1%.
While the MSCI Asia Pacific Index gained 0.2%, the MSCI Emerging Market Index rose 0.3%. The Bloomberg Dollar Spot Index dipped 0.1% and the euro jumped 0.3% to $1.146.
While the British pound rose 0.2% to $1.2586, the Japanese yen weakened 0.1% to 107.18 per dollar and the offshore yuan strengthened 0.1% to 6.9877 per dollar.
The yield on 10-year Treasuries sank one basis point to 0.62% and the yield on two-year Treasuries declined less than one basis point to 0.14%. Germany’s 10-year yield climbed less than one basis point to -0.45%. While Britain’s 10-year yield dipped less than one basis point to 0.16%, Japan’s 10-year yield rose one basis point to 0.031%.West Texas Intermediate crude declined 0.5% to $40.35 a barrel.
and Brent crude dipped 0.4% to $42.91 a barrel. Gold was little changed at $1,811.11 an ounce.