European stocks follow Asian markets higher on trade pact optimism

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European stocks followed Asian equities higher on optimism about a historic trade pact in Asia and hopes for the eventual rollout of a Covid-19 vaccine.

Stocks in the Asia-Pacific region rose across the board after 15 nations, including China, Japan, Australia and Malaysia, signed one of the biggest trade agreements in history. MSCI’s index of Asia-Pacific shares, excluding Japan, rose more than 1 per cent to a record high, while Japan’s Topix rose 1.7 per cent and China’s CSI 300 climbed 1 per cent.

In Europe, the region-wide Stoxx 600 and London’s FTSE 100 were both up 0.7 per cent, while Frankfurt’s Xetra Dax climbed 0.6 per cent. Futures contracts pointed to Wall Street opening higher, with the large-cap S&P 500 index set to rise 0.8 per cent.

“Europe is one of the areas where we could see quite a meaningful catch-up” in sectors of the equity market that have been hit hard by the pandemic, said Maya Bhandari, a fund manager at Columbia Threadneedle.

Asian markets “look to be in relatively better shape” than Europe, with better pandemic news coming out of the region, and investors hoping that US president-elect Joe Biden will usher in a more “measured tone” to US-Asia trade relations than the incumbent, added Ms Bhandari.

Brent crude, the international oil benchmark, climbed 1.6 per cent to above $43 a barrel after Mr Biden’s team reportedly indicated he would seek to avoid imposing a new national lockdown.

“Oil has got a boost along with other risk assets in early morning trading in Asia, with markets responding positively to the US ruling out a nationwide lockdown, despite the surge in Covid-19 cases across the country,” said Warren Patterson, head of commodities strategy at ING.

Although global coronavirus infections have continued to rise, last week’s positive vaccine results from Pfizer and BioNTech helped propel the US S&P 500 to a record high on Friday and was a boon for cyclical stocks, such as airlines car manufacturers.

“After a one-week break around the US presidential election, factors related to the coronavirus pandemic took over to become the most important driving force for markets again,” said analysts at UniCredit. The juxtaposition of rising cases and vaccine optimism mean “markets will probably continue to fluctuate”.

Signs that Asia’s economic recovery was enduring boosted sentiment on Monday. Economic data showed that Japan’s GDP rebounded more than expected in the third quarter, while China’s retail sales rose at the fastest pace in 2020, to above pre-pandemic levels.

“The upshot is that the negative shock to [China’s] labour market and service sector from Covid-19 now appears to have fully reversed,” said Julian Evans-Pritchard, senior China economist at Capital Economics. “We expect a period of above-trend economic growth in the coming quarters.”

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