Vaccine hopes give stocks, euro and oil shot in the arm

LONDON: World shares climbed toward a four-month high on Wednesday with the euro and oil in tow, as hopes for a coronavirus vaccine offset rising tensions between the United States and China.

Asia had a choppy session after more barbs between Beijing and Washington over Hong Kong, but 1.7%-2.2% gains for London, Frankfurt, Paris and a 1% rise in Wall Street futures blew away any caution.

An experimental vaccine for COVID-19 produced by US company Moderna drew safe immune responses in all 45 healthy volunteers, an early stage trial showed on Tuesday. There were reports on Wednesday that a separate University of Oxford trial was also looking good.

Uncertainty remained over how quickly an effective and rapidly available vaccine can be found, said David Miller, investment director at Quilter Cheviot Investment Management, but there was a supportive backdrop for markets.

"This is all against the background of very low interest rates," he said. "What really matters, though, is consumer confidence. I think we are all going to remain fairly wary."

Hopes of progress this week towards a deal on the European Union's 750 billion-euro COVID recovery fund were also helping Europe's mood. The euro was above $1.1430 for the first time since March and Italy and Spain's bond market borrowing costs came down again.

Overnight had been more mixed. Chinese shares fell 1.3% and Hong Kong ended flat, after US President Donald Trump ordered an end to Hong Kong's special status under US law to punish China for its "oppressive actions" against the former British colony.

That prompted a retaliatory warning from China's foreign ministry that "Hong Kong affairs are purely China's internal affairs and no foreign country has the right to interfere". Japan's Nikkei and Australia's benchmark index remained upbeat, though, finishing up 1.6% and 1.9%, respectively.

S&P 500 futures were up 1% too, with shares in Moderna - which has never had a licensed product - up nearly 14% in premarket trading, and the main US airlines and cruise ship operators rose 6%-7% on the vaccine hopes.

Investment bank Goldman Sachs was also pointing higher after reporting higher quarterly profits following the COVID crisis trading boom. JPMorgan, Citi and Wells Fargo had reported huge Q2 profit drops on Tuesday and set aside a collective $28 billion for loan losses.

RED ALERT

The dollar was on the defensive, particularly against risk-sensitive currencies, following the news of progress in vaccine development.

The euro rose as high as $1.1445, its strongest since March 10 and not far off its peak so far this year of $1.1495. The single currency has been helped by hopes the EU will agree at its summit later this week on a financing package to limit the economic damage from the pandemic.

The yen climbed to 106.94 from 107.21 per dollar to leave it near a two-week high. The Bank of Japan kept its monetary policy steady, as expected, on Wednesday though it warned that uncertainty over the economic outlook was "extremely high" due to various risks, including rising coronavirus infections in Tokyo, which was put on "red alert" on Wednesday.

Sweden's crown vaulted to its highest versus the greenback since February 2019 and the risk-sensitive Australian dollar popped to a one-month high at $0.70.

Oil prices rose too after a drop in US crude inventories and before a OPEC video conference on production plans later in the day. Brent crude futures were up 24 cents at $43.14 a barrel. US crude futures rose 22 cents to $40.50 a barrel.

OPEC and allies including Russia, collectively known as OPEC+, are set to decide whether to extend output cuts of 9.7 million barrels per day (bpd) that are due to end in July or prune them back to 7.7 million bpd.

"Most indications suggest that it will be the latter, with more focus on compliance and compensatory cuts," ING Economics said in a note.