Futures Rise, World Stocks At All-Time High On Last Full Day Of 2020

US equity futures and world stocks rose again as the last thrush of the year end rally levitated risk assets, with the S&P inching closer to recent all time highs and Asian shares hitting a record on Wednesday. Futures on the S&P 500 added 0.4%, recouping much of Tuesday’s losses, and emerging-market stocks advanced to the highest levels since 2007 on buoyant inflows. U.S. stocks retreated from an intraday record high on Tuesday after Mitch McConnell put off a vote on President Donald Trump’s call to increase COVID-19 relief checks from $600 to $2,000.

The upbeat mood pushed the dollar to its lowest since April 2018, while its replacement, Bitcoin, extended its frenzied rally, approaching $29,000 before reversing. Speculative bets on USD futures hit the most bearish since 2011.

Predictably, on the last full-day session of the year, volumes were lethargic with Europe’s Stoxx 50 seeing about half of the average activity.  That did not stop them from rising, however, and Europe’s stock markets were set for a sixth straight session of gains as AstraZeneca and Oxford University’s coronavirus vaccine became the second to be approved by Britain, helping the FTSE 100 add as much as 0.2% early on. A new, more transmittable variant of the virus is spreading rapidly but European Union countries have also begun rolling out Pfizer and BioNTech’s vaccine this week. The United States also detected its first-known case of the new, highly infectious coronavirus strains already spotted in Britain and South Africa. Away from the virus worries, British lawmakers were set to vote on the UK-European Union trade deal later on Wednesday, a day before a Brexit transition arrangement expires.

“This is an economy that is recovering, policy is going to be accommodative for years to come, it suggest a good backdrop for risk assets – it doesn’t mean there aren’t going to be some challenges as we progress over the next couple of years,” Brian Levitt, Invesco global market strategist, said on Bloomberg TV. “The reality is the markets are going to be focused on a recovery.”

Elsewhere, MSCI’s world stocks index remained upbeat, up 0.2% and within touching distance of the record highs it had set on Tuesday. The index is up 14% this year and nearly 70% from its March lows, boosted by trillions of dollars in central bank liquidity and helicopter money and also hopes that coronavirus vaccines will re-open locked-down economies.

“The prospect of more rapid and widespread inoculation will be a shot of confidence to markets as the COVID-19 struggle intensifies,” said Janet Mui, investment director at wealth manager Brewin Dolphin.

Earlier in the session, Asia-Pacific shares ex-Japan rose 1.4% to a record high, bringing its gains this year to 19% led by Hong Kong and South Korea, as investors continued to chase beaten-down Chinese internet names. That offset the sentiment drag from fading prospects for bigger U.S. stimulus payments. An extended rebound in shares of Tencent and Meituan, which had been falling amid an antitrust probe into rival Alibaba, helped the MSCI Asia Pacific Index gain 0.8% on Wednesday. China’s tech-heavy ChiNext Index climbed 3.4%, putting it in line for its highest close since July 2015. The advance took the index gain in 2020 to 62%, in line for the most in five years. The large-cap CSI 300 Index also on pace for highest finish since 2015, rising 1.1%

Communication services and information technology were Asia’s top-performing sectors while industrials was the only industry group to fall. Hong Kong’s benchmark jumped 2.2% to the highest level since February, led by Alibaba and peers, as mainland money continued to pile in. China’s CSI 300 Index gained 1.4% to its highest close since June 2015. South Korea’s Kospi jumped 1.9% However, equities in Australia retreated after a three-day rally. Japan stocks also fell on their last day of trading for the year, down -0.45%, though the Nikkei 225 Stock Average ended near its highest level in 30 years..

Attention now again turns to the Senate, where although many Republican Senators in the United States remain adamantly opposed to increasing relief payments, support is growing among them, including two from Georgia, who are running in crucial races that will determine who will control the Senate.

In FX, the dollar’s weakness continued. It dropped again on Wednesday, the first day where settlement of trades will be in 2021. The Bloomberg dollar index slid 0.4% to its lowest since April 18, 2018 as traders squared currency positions ahead of the year’s end amid thin liquidity. The euro reached its highest since 2018 against the greenback at close to $1.23, while the pound climbed, with U.K. lawmakers expected to approve a post-Brexit trade deal with the European Union later Wednesday.  The risk-sensitive Australian and New Zealand dollars advanced amid portfolio rebalancing flows: the OZ dollar rose 0.6% to $0.7663, a two-and-a-half-year high. The Japanese yen also gained 0.25% to 103.28 per dollar.

“The start of COVID‑19 immunization campaigns in several countries as well as additional U.S. fiscal support reduce downside risk to the global economy and bode well for general financial market sentiment,” analysts at Commonwealth Bank of Australia said in a note.

In rates, yields are slightly cheaper across the curve near session highs as U.S. trading gets under way, facing upside pressure from risk assets. U.S. yields are cheaper by ~2bp at long end of the curve, steepening 5s30s by ~1bp, with 10-year just below 0.95%, higher by ~1bp vs 2.5bp for U.K. 10-year yield; bunds trade broadly in line on final trading day of the year for euro-area government debt. Gilt yields and pound also are higher after U.K. approved another vaccine.

In commodities, oil prices extended their recent climb on hopes stimulus and reopening of economies next year will spur fuel demand. WTI crude futures were up 0.73% at $48.35 a barrel. Gold was steady at $1,878.5 an ounce, while bitcoin hit a record high of $28,600 before reversing.

On today’s calendar, the economic data agenda includes pending home sales, MNI Chicago PMI and wholesale inventories

Market Snapshot

• S&P 500 futures up 0.4% to 3,733.25
• STOXX Europe 600 up 0.2% to 402.52
• MXAP up 0.8% to 199.23
• MXAPJ up 1.4% to 658.71
• Nikkei down 0.5% to 27,444.17
• Topix down 0.8% to 1,804.68
• Hang Seng Index up 2.2% to 27,147.11
• Shanghai Composite up 1.1% to 3,414.45
• Sensex up 0.3% to 47,745.08
• Australia S&P/ASX 200 down 0.3% to 6,682.43
• Kospi up 1.9% to 2,873.47
• German 10Y yield rose 1.3 bps to -0.558%
• Euro up 0.08% to $1.2259
• Brent Futures up 0.6% to $51.39/bbl
• Italian 10Y yield rose 1.8 bps to 0.447%
• Spanish 10Y yield rose 0.7 bps to 0.057%
• Brent Futures up 0.6% to $51.39/bbl
• Gold spot up 0.06% to $1,879.32
• U.S. Dollar Index down 0.2% to 89.86

Top Overnight News from Bloomberg

• AstraZeneca Plc and the University of Oxford’s Covid-19 vaccine won U.K. clearance, marking the first approval worldwide for a shot that’s faced questions but will be key to mass immunizations
• Economic shocks like the coronavirus pandemic of 2020 only arrive once every few generations, and they bring about permanent and far-reaching change
• Boris Johnson urged U.K. lawmakers to approve his Brexit trade deal and complete Britain’s four-year divorce from the European Union. Parliament was recalled from its Christmas break for an emergency session on Wednesday to rush the trade agreement into law in a single day, 24 hours before the U.K. leaves the EU single market and customs union
• Changes to the Federal Reserve’s interest-rate setting panel will make the U.S. central bank even less likely to tighten monetary policy in the new year, no matter how much of a jolt the economy gets from the rollout of Covid-19 vaccines
• More areas of England are set to be placed under lockdown, as the new coronavirus strain puts growing pressure on hospitals. People living in London, Essex and Kent should behave as if they have Covid-19, Health Secretary Matt Hancock said in an interview with LBC radio on Wednesday
• Germany’s daily coronavirus deaths surpassed 1,000 for the first time since the beginning of the pandemic, underscoring the urgency facing Europe’s leaders to slow the spread and roll out vaccines

US Event Calendar

• 8:30am: Advance Goods Trade Balance, est. $81.5b deficit, prior $80.3b deficit
• 8:30am: Retail Inventories MoM, prior 0.8%; Wholesale Inventories MoM, est. 0.6%, prior 1.1%
• 9:45am: MNI Chicago PMI, est. 56, prior 58.2
• 10am: Pending Home Sales MoM, est. 0.0%, prior -1.1%; NSA YoY, est. 21.0%, prior 19.5%