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Equities higher on UK-EU trade hopes and US stimulus optimism

Equities higher on UK-EU trade hopes and US stimulus optimism

Equity markets in Europe are on track to close firmly higher as traders have been encouraged by the fact that UK and EU trade negotiators will go the extra mile in a bid to hopefully secure a trade deal and avoid a no-deal scenario. 

Europe

The FTSE 100 is the under performer of the group as the firmer pound is capping its gains. To a certain extent, today’s move is a reversal of Friday’s declines as housebuilders and banks are some of the biggest gainers on the market. A number of big commodity companies – mining and oil – are holding back the British equity benchmark too.  

Ocado is one of the top performers on the FTSE 100 and that is connected to the fact the London and portions of the south east will endure tougher restrictions from Wednesday.       

AstraZeneca has been in the news recently as it is working with the University of Oxford to develop a vaccine for Covid-19. It was reported that Astra has agreed to buy Alexion for $39 billion, and the transaction would help the company expand into the field of immunology and rare-disease medicines. There were a few eyebrows raised by the value of the deal as it equates to a 45% premium, which is very generous. Diversification in any business is a sensible move, especially in the pharma game and Astra has been very successful with cancer drugs.

Aviva announced that it intends to sell off its entire Vietnam operation, and the move will increase the company’s net asset value and solvency surplus by roughly £100 million. The British insurance group recently announced plans to dispose of its Italian life assurance business for roughly €400 million – the group is keen to retreat from certain markets and specialise in a few core regions.  

Adidas announced that it has begun reviewing its options in relation to the Reebok brand. The German sportswear group said there are several options on the table, including selling the US-focused sports brand, as well as keeping it inside the Adidas group. 

Frasers Group, the retail company controlled by Mike Ashley, has been in talks with Debenhams about potentially acquiring components of the business. Over the weekend, one newspaper article reported the Frasers is seeking to buy the online business as well as between 30 and 40 stores.                

US

The S&P 500 and the NASDAQ 100 are showing decent gains as optimism is being fuelled by hopes for a stimulus package. Joe Manchin of the Democratic Party will introduce a $908 billion stimulus package today and it has bipartisan support, so that bodes well but there are no guarantees that it will get passed. A stimulus of $916 billion has been put forward by Steven Mnuchin, the Treasury Secretary, so that has helped the mood too.

The Electoral College will meet today and cast their votes for the president and vice president and this should take us one step closer to President Trump conceding and therefore paving the way for Joe Biden to ascend to the top job in January.      

Alphabet shares are largely flat on the session but earlier today the tech titan’s reputation was sullied a little as Google suffered an outage that was experienced around the world, and it impacted Gmail and YouTube. Things are back to normal now but it caught people’s attention because the services are in such high demand.

The Food and Drug Administration granted emergency authorisation to the Covid-19 vaccine developed by Pfizer and BioNTech. The drug in question is being rolled out today but the process of mass distribution is likely to be slow. Pfizer’s shares are slightly higher today but then again the stock hit a 17 month high last week.

 Alexion Pharma shares have surged on the back of the Astra takeover bid.               

FX

The CMC GBP index is the stand out performer of the currency markets today as trade talks between the UK and the EU are still ongoing. It wasn’t a total shock that the yesterday’s deadline was not achieved but traders were encouraged by the fact that both sides are keen to go the extra mile. It is worth noting that the pound fell to its lowest level in over three weeks on Friday so a bit of bargain hunting is probably doing the rounds.

The USD dollar index fell to a 40 month low as the broader bearish trend in the dollar continues. In recent months, the greenback has attracted safe-haven flows and seeing as US stocks are strong on the back of stimulus hopes, dealers are dumping the dollar. EUR/USD has been boosted by the negative move in the greenback.

AUD/USD hit its highest mark since June 2018. The Australian dollar is considered to be a risk-on currency and it is tied in with industrial metals, which have been strong lately – copper hit a new seven year high on Friday.       

Commodities

Gold has been hit by the risk-on attitude of traders. Historically, the metal has outperformed when stocks have been under pressure and today we are seeing the opposite in play. Dealers are keen to take on more risk and in turn they are dropping gold. It says a lot about the weakness in gold when the metal is in the red despite the fall in the greenback. 

WTI and Brent crude are a little higher today as the oil contracts have recouped some of the ground they lost on Friday. The energy contracts have been helped by the overall bullish sentiment that is running through the markets in relation to vaccine and US stimulus hopes.          


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