Vaccine optimism tempered by Brexit, stimulus uncertainty

NEW YORK (Reuters) – Global stock markets posted modest gains on Tuesday, with optimism fueled by vaccine roll-outs tempered by uncertainty over ongoing talks on Brexit and more U.S. fiscal stimulus, while currencies traded within tight ranges.

FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, December 11, 2020. REUTERS/Staff

Investors were on tenterhooks as London and Brussels continued to debate a trade deal after months of inconclusive discussions. They were also watching the Federal Reserve’s last policy meeting of the year, which ends on Wednesday.

The Dow Jones Industrial Average rose 74.48 points, or 0.25 percent, to 29,936.03, the S&P 500 gained 19.28 points, or 0.53 percent, to 3,666.77 and the Nasdaq Composite added 89.07 points, or 0.72 percent, to 12,529.11.

Europe’s broad FTSEurofirst 300 index added 0.06 percent, at 1,514.21. The MSCI world equity index, which tracks shares in 49 nations, rose 2.42 points, or 0.38 percent, to 631.26.

The number of coronavirus deaths in the United States exceeded 300,000 on Monday as the hardest-hit nation started its first vaccine inoculations, while tighter COVID-19 restrictions were imposed on London.

Other countries across Europe were also set to impose new restrictions during the holiday season to limit the contagion. Germany adopted a stricter lockdown on Sunday.

“Much of Europe will have to weather tighter restrictions until at least early to mid-January. Q4 will be lost quarter for growth, but that should surprise no one,” said AFS analyst Arne Petimezas in Amsterdam.

“Markets remain bifurcated, with the solid post-vaccine advances for equities, credit and commodities intact. Bond yields refuse to budge though, and in particularly euro zone government bond yields remain terribly depressed,” he said.

Positive news on vaccines, along with a market-friendly outcome of the U.S. presidential election that has bolstered hopes of greater fiscal stimulus, have powered gains over the last few weeks, lifting shares to record highs.

A $908 billion COVID-19 relief plan in the United States will be split into two packages in a bid to win approval, a source said on Monday. Lawmakers hope to attach the aid to a government funding measure that needs to be done by Friday.

‘FRIENDLY BACKDROP’

Last week, the United States authorized the emergency use of its first COVID-19 vaccine, developed by Pfizer and BioNTech. The vaccine has already been authorized in several countries, including Britain and Canada.

“The start of vaccine approvals and distribution heightens our confidence in strong global growth in 2021. Combined with supportive policy and a fresh decline in U.S. real yields, this remains a friendly backdrop for cyclical and risky assets,” said Goldman Sachs strategists.

“With the vaccine announcements behind us, and a sizable market response, it makes more sense to look for areas that have under-reflected the coming recovery,” they added.

In foreign exchange markets, the pound rose but remained below Monday’s peak on growing optimism about the chances of post-Brexit trade deal. However, volatility gauges pointed to further turbulence ahead as a Dec. 31 deadline on agreement approached.

It was last 0.3% up at $1.3363 after reaching a two-and-a-half-year high earlier this month.

The euro was last up 0.12 percent, at $1.2157

$1.2157. The dollar traded near two-and-a-half-year lows as demand for the safest assets waned and investors eyed developments in the U.S. stimulus talks. [USD/]

The dollar index, which tracks the greenback versus a basket of six currencies, fell 0.065 point or 0.07 percent, to 90.646.

The yen was last down 0.31 percent, at $103.7100.

Longer-term U.S. Treasury yields were slightly higher on Tuesday as U.S. central bank officials began a two-day meeting and investors watched for progress on spending negotiations in Washington.

The benchmark 10-year yield was up 1.4 basis points in morning trading at 0.9047%.

“For once, there is a bit of uncertainty on the outcome” (of the Fed’s meeting), said Giuseppe Sersale, strategist at Anthilia in Milan. “The pandemic’s fury and some weakening in macro data are seen as good reasons to take action. Personally I don’t believe (the Fed has) reasons to change the current stance.”

Spot gold prices rose $22.3201 or 1.22 percent, to $1,849.49 an ounce.

Brent crude for February delivery was last up $0.46, or 0.91 percent, at $50.75 a barrel. U.S. crude was last up $0.63, or 1.34 percent, at $47.62 per barrel.

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