The euro hit an 18-month high and stock markets gained ground after the EU agreed a €750bn pandemic recovery fund, in a deal struck hot on the heels of reports that a coronavirus vaccine could be ready within months.
After more than four days of tortuous negotiation, the EU’s 27 leaders resolved to issue debt jointly, with the proceeds to be disbursed to countries wrestling with an economic downturn not seen since the Great Depression.
The accord built on optimism sparked by the nascent success in trials of a coronavirus vaccine pioneered at Oxford University. The health secretary, Matt Hancock, has suggested the vaccine could be ready by the end of the year.
Investors took heart from the double dose of positive developments, helping dispel the miasma that has engulfed the global economy since the pandemic took hold.
The euro climbed by 0.6% to reach $1.1518, its highest watermark since January 2019, benefiting from a combination of weakness in the dollar and the historic EU-wide rescue deal.
EU leaders announced early on Tuesday that tense negotiations over nearly five days had finally spawned a blueprint for a €750bn rescue fund, providing a fillip for the single currency.
Analysts at Morgan Stanley described the deal 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”.
The Dax, Germany’s stock market index, climbed nearly 125 points, or 1%, to a five-month high. It fell back slightly after reaching a peak during the day that saw it exceed its level at the close of 2019.
On Wall Street, the S&P 500 had gained more than 17 points, or 0.5% to 3269 by lunchtime, while the Dow Jones index was 1% better off at 26,964.
The Italian FTSE MIB also ended higher, on relief that its economy should benefit from new grants and loans from the EU Covid-19 recovery fund, although France’s Cac and Spain’s Ibex ended the day just 0.2% higher. The pan-European Stoxx 600 closed at a four-month high, up 0.3% on the day.
While European shares bounced, the FTSE 100 was flat, just eight points higher at 6269.73.
Lee Wild, head of equity strategy at Interactive Investor, said sentiment about the FTSE was still cautious, notwithstanding upbeat reports about the experimental coronavirus vaccine being developed at Oxford University.
“Despite the optimism around a possible vaccine and other drugs to help combat the pandemic, almost two-thirds of investors are still worried about the prospect of a ‘second spike’, possibly during the autumn and winter months,” he said.
“It perhaps explains the current impasse that we see in the domestic stock market where dividends have been a major casualty of lockdown.
“The FTSE 100 has moved largely sideways since breaking back above 6000 in May, as more bullish investors remain wary about chasing the market too high during a deep recession that could last through 2020.”
The FTSE’s relatively poor showing compared with European counterparts was also partly down to the weakness of the dollar, a currency that accounts for a sizeable proportion of the income of London-listed companies, which report profits in sterling.
Investment platform Willis Owen said the dollar could be depressed due to the huge money-printing programme launched by the US central bank, and America’s huge deficit, which hit a record of $864bn in June.
Dollar weakness also typically pushes up the price of commodities measured in the US currency and the greenback’s sluggishness kept oil at a four-month high and gold at a nine-year peak.
The spot market price for the precious metal – which tends to rise in value during crises due to its status as a “safe haven” asset – surged past highs last seen in September 2011 to reach $1,827 per ounce by lunchtime.
Analysts at Wall Street bank Citigroup believe gold may reach a new record by rising to the $2,000 mark before the end of 2020.