Global markets buoyant as U.S. stimulus debate approaches

LONDON (Reuters) – Global stock markets gained for a second day on Tuesday, spurred by increased optimism about economic stimulus and global recovery, while retail investors retreated from GameStop and their new-found interest in silver.

Positive momentum from Asia carried through to Europe, with the pan-European STOXX 600 climbing 1.1%.

Initial European Union estimates showed the euro zone economy contracted less than expected in the fourth quarter of 2020 but is heading for another, probably steeper decline, in the first quarter of 2021.

MSCI’s world equity index, which tracks shares in 49 countries, was up 0.4% after posting its strongest day in three months on Monday.

MSCI’s gauge of Asia-Pacific stocks outside Japan rose 1.4%. China’s benchmark CSI300 Index gained 1.5%, helped by easing concerns about tight liquidity and declining cases of new coronavirus infections. Japan’s Nikkei 225 added 1%.

E-mini futures for the S&P 500 index added 0.8%.

Markets were buoyant before negotiations Tuesday between U.S. President Joe Biden and Republican senators on a new COVID support bill. The GOP’s $618 billion stimulus plan released early Monday was about a third the size of the President’s proposal. Top Democrats later on Monday filed a joint $1.9 trillion budget measure in a step toward bypassing Republicans.

“If you have the ability to have stimulus compromise, it’s going to be very supportive for financial assets in the medium term as it means you will have the ability to have an economic recovery,” said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners.

“The $1.9 trillion was set as a high bar of the possibilities and in a way to get into a negotiation to get something that would be smaller and more efficient.”

The dollar was near a seven-week high, benefiting from a euro selloff after coronavirus lockdowns choked consumer spending in Germany, and on short-covering in over-crowded dollar-selling positions.

The dollar index eased by 0.1% to 90.9.

Against the dollar, the euro was trading at $1.2032, just above an early December low hit in the previous session.

Graphics: EURUSD and CESI –

The Australian dollar pared gains after the country’s central bank said it would extend its quantitative easing programme to buy an additional $100 billion of bonds. The Aussie last stood at $0.7602, off the day’s high of $0.7662.

With global market sentiment remaining upbeat about U.S. fiscal stimulus, core euro zone government bond yields edged up, with the benchmark German 10-year Bund yield < DE10YT=RR.> around two basis points higher at -0.492%.

The 10-year U.S. Treasury note added 3 basis points to yield 1.1087%, its highest since Jan 22.

Institutional investors are still digesting the retail trading frenzy that boosted GameStop Corp and other so-called meme stocks in recent sessions against their financial fundamentals, but they have made cautious moves to protect their positions.

GameStop’s Frankfurt-listed shares were down 36.5% from Monday’s close at 132 euros ($158.8) on Tuesday. The shares closed in U.S. markets at $225.

Spot silver prices slipped 5% to $27.53 per ounce, as investors locked in profits after the precious metal touched a near eight-year peak in the previous session, driven by retail investors.

Spot gold fell 0.9% Tuesday to $1,841.96 per ounce.

Brent crude was up 2.3% at $57.65 a barrel. U.S. crude gained 2.35% to $54.82 a barrel after major crude producers showed they were reining in output roughly in line with their commitments. [O/R]

($1 = 0.8312 euros)

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