Stocks scale new peaks, sterling awaits last supper on Brexit

Global stocks reached record highs on Wednesday as investors hailed efforts to provide more fiscal stimulus and positive news on COVID-19 vaccines, and sterling made gains as British and European leaders meet for talks on a Brexit trade deal.

U.S. lawmakers continued to negotiate over additional stimulus to help offset the economic impact of the pandemic while pursuing a stopgap government-funding bill. Leaders in both parties remain adamant a deal must be struck but are still working through sticking points.

More good news on COVID-19 vaccines also lifted investor spirits. Britain this week became the first Western nation to begin a wide vaccination campaign, and Johnson & Johnson (NYSE:JNJ) said it could obtain late-stage trial results for a single-dose vaccine in January, earlier than expected.

Pfizer Inc (NYSE:PFE) also cleared another hurdle when the U.S. health regulator released documents flagging no new safety or efficacy concerns.

“Momentum will be a little bit less than it has been. There are certain questions to be answered about the logistics of the vaccines, and vaccines don’t change the winter picture for the virus, but we are expecting positive returns for next year … there’s a lot going for the global economy,” said Seema Shah, chief global strategist at Principal Global Investors.

MSCI’s gauge of stocks across the globe rose to a record 635.65, up 0.23%. The index has been on a roll for weeks, gaining 15% since the beginning of last month.

U.S. futures rose 0.14%, pointing to Wall Street adding to its record high.

European stocks reached their highest since February. The German DAX index gained 0.9% and Britain’s FTSE 100, which has been hardest hit of the main global indexes this year, added 0.36%.

However, Britain injected a note of caution into the vaccine euphoria, saying people with a history of significant allergic reactions responded adversely to the Pfizer vaccine.

DINNER TALKS

The euro was down 0.66% against the British pound and the pound was up 0.78% versus the dollar before make-or-break talks on a trade deal between Britain and the European Union.

British Prime Minister Boris Johnson heads to Brussels on Wednesday for a meeting over dinner with European Commission President Ursula von der Leyen in a push to avoid a turbulent breakup in three weeks.

There was a glimmer of hope on Tuesday after Britain said it would drop clauses in draft domestic legislation that breach the already agreed Brexit divorce settlement, after reaching an “agreement in principle” with the EU over how to manage the Ireland-Northern Ireland border.

Britain and the EU have agreed a trusted trader scheme on the border, Ireland’s state broadcaster RTE said on Wednesday.

The Canadian dollar approached the previous session’s two-and-a-half-year high against the U.S. currency before a rate decision at 1500 GMT. The central bank is expected to keep rates unchanged until the end of 2022 and will not ramp up its asset- purchase programme anytime soon, according to a Reuters poll.

Euro zone bond yields – which move inversely to price – edged down before Thursday’s European Central Bank meeting, where further monetary stimulus is expected.

Portugal’s 10-year bond yield, which fell this week to a record low of -0.01%, was trading at zero.

“That caps off a remarkable journey from the height of the sovereign debt crisis, when in early 2012 (the yield) was trading above 18% intraday,” Deutsche Bank (DE:DBKGn) analysts said in a note. Spain’s 10-year yields could be next to go sub-zero, they said.

The U.S. dollar dipped to 90.82 against a basket of currencies, nearing a two-and-a-half-year low hit last week in a move to riskier assets.

Highlighting the dollar’s weakness, the offshore Chinese yuan strengthened past 6.5000 to reach its strongest in more than two years. The onshore yuan also traded near its highest in more than two years.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6%, touching a record high.

Japan’s Nikkei rose 1.3% to approach a 29 1/2-year high. South Korean stocks also jumped by 1.6% to trade near a record high after falling on Tuesday. Shares in China bucked the trend and fell 0.7% on profit taking.

Oil prices rallied as the positive vaccine news lifted investor hopes for a recovery in fuel demand.

Brent crude futures rose 15 cents to $48.99 a barrel. U.S. West Texas Intermediate futures gained 13 cents to $45.73. [O/R]

Spot gold fell 0.9% as the start of vaccine treatment reduced safe-haven demand for the precious metal.

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