Europe close: US stimulus, Brexit hopes offset new Covid strain worries
European shares closed higher on Tuesday as approval of a US stimulus package and Brexit hopes offset concerns over the new coronavirus strain in the UK that saw 40 countries close their borders in response.
The pan-European STOXX 600 finished 1.18% higher after a sharp sell off on Monday in response to the Covid news from Britain. The UK FTSE 100 finished 0.5% higher, while the German DAX climbed 1.30% and French CAC 40 1.36%.
There was also a mixed start on Wall Street with, the Dow Jones Industrial Average was down 0.33% at 30,118.07, while the S&P 500 was 0.05% stronger at 3,696.60 and the Nasdaq Composite came out the gate 0.67% firmer at 12,828.17.
Shares were given some impetus after the US Congress on Monday finally approved an $892bn fiscal stimulus after months of tortuous negotiations while the coronavirus death toll in the world’s biggest economy soared.
In the UK, strict lockdowns that effectively shut down London and the South East to stymie the spread of the new coronavirus strain triggered border bans and travel restrictions from several countries, although the EU had by late afternoon instructed its member states not to issue blanket bans.
On Monday, the UK made a proposal that would see the EU reduce the value of the fish it catches in UK waters by 30%, down from the 60% cut it was insisting the EU accept last week. However, reports said this had been rejected.
The UK and the EU have until December 31 to agree a trade deal. On Monday, the British government insisted it would not extend the transition period despite growing calls for the deadline to be pushed back.
EU chief negotiator Michel Barnier said on Tuesday that the European Union is giving a "final push" to reach a deal.
Speaking to reporters before a meeting in Brussels to brief EU ambassadors, the EU’s chief Brexit negotiator said: "We are really in a crucial moment. We are giving it a final push."
CMC Markets analyst David Madden said traders "have swooped in and snapped up relatively cheap stocks as the mood is a little more optimistic."
"The new strain of Covid-19 that is in circulation in the UK is still a major concern but some of the fears have melted away today. The French government have signalled that they are looking to end the ban on UK freight entering the country and that has assisted sentiment."
On the macroeconomic front, UK GDP rose by 16% in Q3, up from an initial estimate of 15.5%. This means the economy is still 8.6% below where it was at the end of last year, up from an initial estimate of 9.7% below.
Separate data showed that government borrowing rose to £31.6bn in November, compared to consensus expectations of £31.4bn. This was a £26bn increase on November 2019, which is both the highest November borrowing and the third-highest borrowing in any month since monthly records began in 1993.
In equity markets, video game maker CD Projekt shares rebounded 4.57% after last week's sell off in response to problems with its much-hyped Cyberpunk 2077 release.
The move into positive territory was a reversal of Tuesday's negative session as banks, airlines, transport stocks and housebuilders made gains. Lloyds, Barclays and NatWest were all higher.
British Airways and Iberia owner IAG and engine maker Rolls-Royce also gained after sharp falls in the previous session.
AstraZeneca shares fell as the company said the experimental asthma drug developed with US partner Amgen failed to meet the main goal of a late-stage trial.
Royal Mail shares rose after postal workers won their long-running dispute with Royal Mail and agreed a 3.7% pay rise as part of a two year agreement. The company reported a surge in parcel volumes and said it would now focus on this sector as letter usage declined.