European stocks soft after week of optimism


European equities were muted on Friday, and the pound dropped, as political wrangling continued on both sides of the Atlantic over trade terms and fiscal stimulus.

Sterling traders digested the latest statements from London and Brussels on the chances for a UK-EU trade deal. On Thursday evening, European Commission president Ursula von der Leyen said both sides in post-Brexit trade talks “welcomed substantial progress on many issues”.

The assessment from the UK was more pessimistic, with a spokesperson saying “fundamental areas remained difficult” on the issue of fair competition between European and British companies.

The pound slipped 0.6 per cent against the dollar to $1.35 on Friday, coming down from the two-year high set in the previous session. It is still up more than 2 per cent this week, as investors placed bets on a trade deal being done.

The dollar, as measured against trading partners’ currencies, gained 0.2 per cent but remained at its lowest point since April 2018.

On the stock markets, Europe’s benchmark Stoxx 600, which has risen every day this week, was broadly flat in morning trading but headed towards a near 2 per cent weekly rise.

The UK’s FTSE 100 was 0.5 per cent higher, while Germany’s Xetra Dax rose 0.3 per cent.

“The markets are still expressing optimism on the US stimulus deal, Brexit and western governments’ handling of the [coronavirus] pandemic,” said Samy Chaar, chief economist at Lombard Odier.

US Senate leaders, in talks over a $900bn stimulus package, warned overnight they would need to extend discussions through the weekend to resolve disagreements over the Federal Reserve’s emergency credit facilities, unemployment benefits and relief aid for cities and states.

Data released on Thursday showed that initial unemployment claims in the US surged to a three-month high last week of 885,000, topping economists’ estimates of about 800,000.

The unexpected jump in jobless numbers could “provide US policymakers with a strong incentive to push the stimulus package through in the next few days”, analysts at Rabobank commented.

US stock markets have been supported this week by the Fed’s pledge that it would continue buying at least $120bn of bonds per month until “substantial further progress has been made” in the economic recovery from the pandemic.

“We saw upward revisions to their expectations on inflation and growth, but at the same time they did not upgrade their interest rate forecast,” Mr Chaar said. “This signals they will not strongly respond to economic improvements, which creates a positive backdrop.”

Futures contracts signalled the US S&P 500 index of blue-chip shares would open broadly flat at Wall Street’s opening bell.

Oil prices softened, with the international Brent crude market losing 0.4 per cent to $51.29 a barrel.




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