European Stocks Hit 10-Month High

What’s happening: European stocks climbed to a new ten-month high on Tuesday just a day after Wall Street stocks surged to record levels.

What happened: Market sentiment in Europe was lifted by the rally in US stocks on Monday after President Donald Trump signed the $900 billion covid-19 relief package.

The signing of the Brexit trade deal and the commencement of coronavirus vaccination campaigns in various countries also helped the pan-European index record gains for a fifth consecutive session.

Why it matters: European stocks extended gains yesterday, US stocks jumped to record highs on Monday as President Trump signed the massive coronavirus rescue bill into law, which includes direct payment cheques of $600 to individuals. The US President continued to push for cheques of $2,000 even after signing of the bill. The House later voted to increase the direct payments, which awaits clearance from the Senate.

Investors also cheered the signing of the long-awaited Brexit trade deal between the EU and Britain on Christmas Eve, helping London’s FTSE 100 index record gains of 1.6% on Tuesday. The deal, which was approved by ambassadors from 27 Eurozone member nations, will be implemented from January 1, 2021.

While the agreement clears near-term doubts over trade between the two regions, there is still uncertainty around the EU granting the UK access to Eurozone’s financial market.

Shares of AstraZeneca were among the top performing stocks on the FTSE index, which were boosted by expectations of the company’s covid-19 vaccine receiving approval in the UK.

The new strain of the covid-19 virus found in the UK remains a source of concern for markets, with the new variant spreading faster than the original one. Britain reported more than 41,000 new cases on Monday, the highest daily rise recorded by the country.

The pan-European Stoxx 600 index gained 0.76% on Tuesday, with most sectors closing in the positive zone. Travel and leisure stocks were among the top performers, driven by the launch of a vaccination drive in the EU.

The German DAX 30 index surpassed the 13,900 level for the first time ever yesterday but cut back gains to settle lower by 0.2% at 13,761. Meanwhile, the French 40 added 0.4% to settle at 5,612 on Tuesday, ending at its strongest level since February 26.

What to watch: Investors will continue to focus on the covid-19 vaccine rollout in EU countries. Markets will also closely monitor developments around the approval of AstraZeneca’s vaccine in the UK. Rising covid-19 cases will also remain a major concern for investors, with total infections surpassing 81.9 million worldwide.

Spain is scheduled to release inflation and current account data, while Britain will be reporting the nationwide house price index.

The greenback will be in focus today after the US dollar index dipped to a near 32-month low.

Context: The US dollar fell versus most of its major peers on Tuesday, making the greenback the worst performer in the global forex market.

Details: The long-awaited approval of the US stimulus package lifted optimism around a sharper economic recovery. The rollout of covid-19 vaccines in various countries around the world also improved market sentiment, pushing traders away from safe-haven currencies, including the US dollar.

The greenback pared some losses on Tuesday after hitting a more than two-year low versus the euro. However, the dollar remained under pressure through the day, with markets weighing the prospects of an increase in direct payment cheques to Americans. The US dollar index, which measures the currency’s performance versus a basket of major rivals, tumbling to its lowest level in around 32 months today.

The EUR/USD forex pair was also supported by strength in the euro due to the signing of the Brexit trade deal. Trading volumes remained low as various investors took a break for the Christmas and New Year holidays.

Investors expect the US dollar to remain under pressure as the Fed had indicated that it intends to maintain interest rates near the zero level for a long period. The greenback is down around 6.8% so far this year.

The euro gained 0.28% to close at $1.2251 on Tuesday after rising as high as $1.2274 earlier in the session, which was the highest level since April 2018. The Aussie also rose 0.39% to $0.7610 versus the greenback.

What to watch: Traders await a basket of economic data from the US, including goods trade balance, wholesale inventories, Chicago PMI and pending home sales. The Chicago PMI is expected to decline to 57 in December, from last month’s reading of 58.2, while pending home sales is likely to show flat growth for November.

Other Markets: Asian indices were trying mixed this morning, with Hong Kong’s Hang Seng index and China’s Shanghai Composite up by 1.2% and 0.6%, respectively. However, Japan’s Nikkei traded lower by 0.7%.

Brazil's nominal budget value, Saudi Arabia’s balance of trade, Mexico’s government budget value as well as the US MBA mortgage applications, EIA’s crude oil stocks and Baker Hughes crude oil rigs.