US Market Open: Higher start as stimulus bill avoids shutdown
Joshua Warner December 28, 2020 11:19 PM
US markets are expected to follow European indices higher as they digest the new stimulus bill, Brexit deal, and the progress being made with vaccines.
- US markets are expected to follow European indices higher today, with the German DAX hitting a new all-time high.
- The approval of the new US stimulus bill, a Brexit deal being agreed, and progress being made with COVID-19 vaccinations are all providing support to markets.
- In forex, the pound has lost ground against both the dollar and the euro.
- In commodities, oil prices edged higher as markets regain confidence over a global economic recovery next year, while gold has edged lower.
US indices to open higher
The S&P 500 is called to open 0.8% higher at 3730.4 from its last closing price of 3702.4.
The Dow Jones is set to open 0.6% higher at 30382.0 after ending the last session at 30202.5.
Trump signs stimulus bill to avoid government shutdown
US president Donald Trump has signed a $2.3 trillion spending bill, including a $900 billion COVID-19 relief package. Trump had initially threatened not to sign the bill, which Republicans and Democrats wrangled over for months, because it was ‘wasteful’, but signed it into law last night to avoid a partial government shutdown when existing federal funding was due to expire on Monday.
The president’s approval has averted a crisis ahead of president-elect Joe Biden taking office on January 20. Still, Democrats are hoping to capitalise on Trump’s demand to pay Americans $2,000 in relief cheques rather than the $600 currently outlined in the bill by trying to advance the proposal in a vote on Monday.
Separately, lawmakers are expected to try to override the president’s veto of a $740 billion defence bill on Monday.
Alibaba shares hit lowest level since June
Alibaba shares in Hong Kong fell to their lowest level since June as concerns over China’s regulatory crackdown on monopolies weighs on the stock’s prospects. Shares closed at 208.26, down 30% since Chinese authorities announced they were to investigate the company as well its tech and financial subsidiary Ant Group, which was forced to delay its huge IPO earlier this year.
The hefty slide comes despite Alibaba’s announcement over the weekend that it plans to buyback $10 billion worth of shares by the end of 2022 instead of the original $6 billion sum. Alibaba’s shares in the US are expected to follow lower today.
European indices: DAX hits new record high
The Euro STOXX Index traded 0.9% higher at midday at 3580.5 from 3548.3 at the close on December 24.
France’s CAC 40 was up 0.9% at 3580.5 from 5534.7.
Germany’s DAX was up 1.2% at 13796.0 from 13635.5 at the last close. The index briefly touched an all-time high of 13828.0 in earlier trade.
UK markets are closed today due to the bank holiday.
Markets start digesting Brexit deal
It was touch and go at points, but we finally have a Brexit deal after the UK and the EU announced they had reached agreement late on December 24. Today is the first opportunity for European markets to react to the news, with the DAX briefly hitting a new all-time high.
The deal still must be approved by both sides. UK politicians are expected to vote on the deal on December 30, while the EU is to provisionally approve it before formally ratifying it later.
The deal provides some clarity to markets and avoids the worst-case scenario of a no-deal, but it will still be some time before the details will be fully understood. There will still be huge changes for some businesses when the transition period ends on December 31. For example, UK prime minister Boris Johnson has admitted the deal does not deliver on his ambitions for the financial services industry, which is largely excluded from the agreement.
EU begins vaccination programme
The EU launched its mass vaccination programme on Sunday, as the first citizens received their first dose of the Pfizer-BioNTech vaccine. The bloc is set to receive 12.5 million doses by the end of the year, enough to vaccinate 6.25 million people. The EU has bought over 2 billion doses of various vaccines developed by numerous providers, giving it more than enough to protect its 450-million strong population throughout 2021 (assuming the other vaccines are approved and delivered).
Meanwhile, the UK is poised to be the first to approve a vaccine developed by AstraZeneca and Oxford University. The vaccine is expected to offer advantages over the Pfizer-BioNTech one because it can be stored easier and is cheaper to produce. UK regulators could approve the new jab as early as Tuesday, according to reports.
Forex: Pound loses ground to dollar and euro
GBP/USD traded at 1.34892 at midday, down 0.5% from 1.35527 at the close of trade on December 24.
EUR/USD was broadly flat at 1.21973 from 1.21872.
Meanwhile, EUR/GBP was up 0.6% at 0.90420 from 0.89913 at the last close.
Commodities: Oil prices edge higher
Brent traded at $51.77 at midday after ending the last trading session at $51.31, while WTI was 0.8% higher at $48.71 from $48.32.
Gold was trading 0.4% lower at $1871 from $1879 at the close of trade on December 24.
Market-moving events in the economic calendar
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