Germany’s main stock index shed its 2020 losses and investors shifted into the bonds of riskier eurozone borrowers after EU leaders struck an agreement for a €750bn fund to shore up the bloc’s economy.
The Dax index of German blue-chip stocks rallied 1.6 per cent on Tuesday, propelling it narrowly into positive territory for the year. It had been down more than 35 per cent during the darkest days of March.
Investors also snatched up the debt of EU countries that have endured especially hard hits to their public finances from the virus.
Italy’s government bonds, which are closely watched as a proxy for eurozone investor confidence, have rallied strongly in price this week. The 10-year bond yield has dropped 0.119 percentage points since Friday to 1.05 per cent, the lowest level since March.
The spread between German and Italian bonds, another key gauge of perceived risk, narrowed to its lowest level in four months after the agreement was struck. Yields on Spanish and Portuguese debt have also declined over the past two days.
“We see the recovery fund . . . as a game changer for Europe, supporting a synchronised recovery and stronger growth over a sustained period, while making monetary union more stable and the euro more attractive,” said Reza Moghadam, a Morgan Stanley economist.
The gains for equities and bonds followed the promise of further stimulus after the EU nations agreed to provide €390bn in grants and €360bn in low interest loans to support the post-pandemic economic reconstruction.
Leaders had previously struggled to reach consensus during the second longest summit on record and at times heated debate, as wealthy “frugal” states, including Austria and Denmark, opposed the idea of letting the EU borrow money to fund the budgets of member states.
The continent-wide Stoxx 600 was up 1 per cent on Tuesday, Milan’s FTSE MIB rallied 2.1 per cent while London’s FTSE 100 ticked up 0.5 per cent.
The euro gained 0.1 per cent to $1.1458, still near a four-month high against the dollar, following the deal’s announcement early on Tuesday. Measures of the cost to insure against a default on European corporate bonds continued to ease sharply from peaks in March, signalling easing strains the region’s credit markets.
However, investors continued to snap up haven assets with silver hitting its highest level in four years and gold ascending at its highest level in nine years to $1,820 per troy ounce.
Equities were further boosted by optimism over a potential coronavirus vaccine after a flurry of promising results from clinical trials.
A study published on Monday hinted at promising results in the first phase of clinical trials for a coronavirus vaccine developed by Oxford university and AstraZeneca.
Futures tipped the S&P 500 to rise 0.4 per cent when trading on Wall Street begins later in the day.
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Hong Kong’s benchmark Hang Seng index rose 1.9 per cent in Asia-Pacific trading on Tuesday while Australia’s S&P/ASX 200 added 2.6 per cent and South Korea’s Kospi 1.4 per cent. Japan’s Topix gained 0.4 per cent.
China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks gained 0.2 per cent.
In Hong Kong, shares in the operator of the city’s bourse gained 9.1 per cent a day after Ant Group, the payments arm of ecommerce business Alibaba, announced its long-awaited plans for a listing.
Oil prices edged higher with Brent crude, the international benchmark, up 0.6 per cent to $43.55 a barrel.