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Markets

Stocks recover as US stimulus offsets angst over new coronavirus strain

  • Euro STOXX 600 up 0.8%.
  • New COVID-19 strain a "bump in the road".
  • Congress approved $892 billion stimulus.
  • Sterling falls 0.5% as new COVID-19 strain hits Britain.
  • Dollar index gains 0.1%, faces 3rd straight quarterly loss.
Published December 22, 2020
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LONDON: Stocks rebounded on Tuesday, with Washington's approval of an $892 billion pandemic relief package helping them recover some of the losses caused by fears over a highly infectious new strain of COVID-19.

The Euro STOXX 600 added 0.8%, its biggest one-day jump in over five weeks in sight. German and French indexes added 1% and 0.8% respectively.

London's blue chips turned positive, too, recovering early losses even as Britain adjusts to strict lockdowns imposed to curb the spread of the new strain of coronavirus. Wall Street futures also edged into the black.

Fuelling the optimism, in part, was the US Congress's approval on Monday of a coronavirus aid package after months of inaction. The first such aid since April came as the pandemic accelerated in the United States, infecting more than 214,000 people every day and slowing the economic recovery.

The bill includes $600 payments to most Americans and additional payments to millions of people thrown out of work during the pandemic.

Market players also took stock of the damage from a new COVID-19 variant, with investors betting that vaccines would still be effective against the new strain.

On Monday, countries across the world shut their borders to Britain because of fears over the new strain, snarling one of Europe's most important trade routes just days before Britain is set to leave the European Union.

The discovery, just months before vaccines are expected to be widely available, brought back fears over the economic impact of new lockdowns to counter the virus, which has killed about 1.7 million people worldwide.

European shares had slumped 2.3%, their biggest one-day loss in nearly two months, in response.

The new strain "is a bump in the road, but that road is still leading to a much stronger recovery in the second half of next year," said Hugh Gimber, global market strategist at J.P. Morgan Asset Management.

"Markets are a lot calmer today because of confidence that there is a big build up of pent-up demand and a return to much stronger levels of activity in the second half of next year."

The MSCI world equity index, which tracks shares in 49 countries, was flat. Earlier, MSCI's gauge of Asia-Pacific stocks outside Japan had sunk 0.8%.

THE POUND'S PROSPECTS

The stimulus news helped prop up the dollar index, which was still on course for a third consecutive quarterly loss after dropping some 12.5% from a March peak.

The index, which measures the dollar against a basket of six major currencies, was last up 0.1% at 90.232, still below its Monday top of 90.978.

ING analysts said the US relief package "won't be able to fully offset the effects of people staying at home as many businesses face tighter restrictions or are even forced to close."

In Britain, sterling slipped 0.5% after tumbling as much as 2.5% versus the dollar on Monday to a 10-day low amid the twin fears over COVID and Brexit.

European Commission President Ursula von der Leyen and British Prime Minister Boris Johnson spoke on disagreements over fisheries that are barring a new trade deal, sources said.

Analysts remained pessimistic on the pound's prospects, even after reports of progress in Brexit trade talks.

MUFG said in a note to clients it expected London and Brussels would strike a last-minute deal, but added: "Even if a trade deal is reached, upside potential for the pound will now be dampened by recent negative COVID developments in the UK."

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