By Danilo Masoni and Saikat Chatterjee
British Prime Minister Boris Johnson is awaited in Brussels for crisis talks over dinner with European Commission President Ursula von der Leyen in what is seen as a last-ditch attempt to avoid a tumultuous no-trade deal Brexit in three weeks' time.
With the pound hovering just one percent below a May 2018 high reached last week and currency derivative markets flashing red, the stakes are high for EU and British negotiators.
Despite panic-level Brexit tensions, ongoing efforts in the U.S. over a coronavirus aid package and positive vaccine updates provided just what was needed to push U.S. stocks to new records. Asia duly followed briefly while European stock futures is likely to reclaim February highs.
U.S Treasury Secretary Steven Mnuchin presented the Trump administration’s $916 billion coronavirus relief package on Tuesday after congressional Democrats shot down a suggestion for a pared-down plan.
The robust risk appetite in the stock market rippled over into the currency markets with the Chinese yuan rocketing past the 6.50 yuan per dollar for the first time since July 2018. Elsewhere, the Australian dollar also soared 0.5% on positive consumer sentiment data.
U.S. coronavirus cases crossed the 15 million mark on Tuesday as regulators moved a step closer to approving a COVID-19 vaccine and Britain started inoculating people.
And in the murky world of money markets, dollar funding costs have steadily risen this week as concerns of year-end funding squeeze boosted the demand for greenbacks in the swap markets.
But the prospects of more bond purchases from the European Central Bank at Thursday’s meeting means there are no signs of stress in the bond markets and currency traders are increasingly wary of shorting the euro as activity indices point to Europe outperforming the U.S. in recent weeks.
Indeed, Portugal’s 10-year yield closed in negative territory for the first time, at -0.006% That caps a remarkable journey from the height of the 2012 sovereign debt crisis, when it was trading above 18%. Spain might be the next to join its European counterparts in the negative rates club even as bond yield spreads over benchmark German debt hovered near lows.
Finally on the corporate news front, dealmaking continues with security group G4S (CSE:G4S) agreeing to be bought out by Allied Universal for 3.8 billion pounds. Finally, Tesla continues to defy gravity laws with its shares climbing to new records, absorbing its latest 5 billion capital raise.
Key developments that should provide more direction to markets on Wednesday:
- Bank of Canada rate decision
- German trade data