(Bloomberg) – The euro strengthened to a four-month high and European bond spreads narrowed as regional leaders advanced in negotiating a landmark stimulus package for economies devastated by the pandemic.
The yield spread on Italy’s 10-year bond over Germany, a key indicator of risk in the region, fell to the lowest level since March. Most European stocks declined, led by oil producers and banks. AstraZeneca Plc was ahead of the highly anticipated results of the first vaccine studies. Oil extended losses to $ 40 per barrel.
In Europe, efforts continued to agree on a stimulus package of 750 billion euros ($ 856 billion), amid differences over how much of the recovery fund should be distributed through grants versus low-interest loans.
The four governments that have been delaying negotiations are ready to agree on a key plan for the deal, two officials said. The Netherlands, Austria, Denmark and Sweden are satisfied with the fund’s 390 billion euros available as grants and the rest as low-interest loans, the officials said, asking not to mention them discussing private conversations.
EU holdouts ready to accept € 390 billion in fund grants
“Our base case is that an agreement is reached by the end of the month, but I still think it is possible today,” said James McCormick, global head of desk strategy at NatWest Markets. “The widespread recovery in the euro was a great macro story last week and clearly reflected growing optimism about the eventual approval of the recovery fund.”
After three weeks of gains for global stocks, investors are weighing the potential for additional policy support as the pandemic continues to impact economies. The company’s results are also in focus, with an avalanche of earnings reports this week.
On the coronavirus front, Hong Kong added a record 108 infections, will require officials to work from home, and plan to require the use of masks in all shared interior areas. In the United States, Los Angeles Mayor Eric Garcetti warned that the city is on the brink of another order to stay home.
“Our base case remains that the economic recovery continues, but that the deep rebound of V is evident in many recent data to make way for a slower and more uneven recovery in the future,” said Shane Oliver, head of investment strategy at AMP Capital Investors Ltd. “Stocks are still vulnerable to further correction or consolidation, with renewed blockades and the United States presidential election being the main risks.”
Here are some key events to come:
Quarterly earnings are gathering steam, including Blackstone Group, Microsoft, Roche, Intel, Unilever, Canadian Pacific, UBS, Tokyo Steel, Daimler, Hyundai and Mattel. The EIA crude oil inventory report is due on Wednesday.
These are the main movements in the markets:
Stocks
S&P 500 Index futures fell 0.6% at 8:13 am London time. The Stoxx Europe 600 Index decreased 0.5%. The MSCI Asia Pacific Index rose 0.1%. The MSCI Emerging Market Index increased 0.2%.
Coins
The Bloomberg Dollar Spot Index was up 0.1%. The euro rose 0.1% to $ 1.1446. The British pound was down 0.1% at $ 1.2559. The Japanese yen weakened 0.2% to 107.24 per dollar. The offshore yuan strengthened 0.1% to 6.9866 per dollar.
Captivity
The yield on 10-year Treasury bonds decreased one basis point to 0.62%. The yield on two-year Treasuries fell less than one basis point to 0.14%. Germany’s 10-year yield rose two basis points to -0.43%. Britain 10-year yield rose one basis point to 0.172%. Japan’s 10-year yield increased one basis point to 0.032%.
Basic products
West Texas Intermediate crude decreased 1.2% to $ 40.10 per barrel. Brent crude fell 1.1% to $ 42.65 per barrel. Gold weakened 0.1% to $ 1,809.51 an ounce.
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