Global markets at record highs amid stimulus and recovery hopes – business live

Investor sentiment in Germany has jumped this month, lifted by hopes that consumer spending will surge as the pandemic lockdown ends.

The ZEW economic research institute reports that its survey of investors’ economic sentiment jumped to 71.2 points in February, from 61.8 in January.

Economists had expected the index to drop to 59.6, so this suggests that confidence is stronger than thought, even though Germany’s lockdown has been extended into early March.

ZEW President Achim Wambach says:

“The financial market experts are optimistic about the future. They are confident that the German economy will be back on the growth track within the next six months.

Consumption and retail trade in particular are expected to recover significantly, accompanied by higher inflation expectations.”

However, ZEW’s gauge of current conditions dropped to -67.2 in February, from -66.4 the previous month.

Here’s some reaction:

The eurozone shrank slightly less than first thought at the end of 2020, new data shows, but it still faces a double-dip recession.

Eurozone GDP shrank by 0.6% in the October-December quarter, statistics body Eurostat has reported.

That’s better than the first estimate of a 0.7% contraction. But as many economists forecast that GDP will also shrink in the current quarter, the eurozone is still in double-dip territory.

For 2020, GDP shrank 5%, again slightly better than the 5.1% first reported.

Eurostat also reports that employment picked up in the last quarter, but is still around 2% lower than a year ago, before the pandemic.

The pound has touched a new 33-month high against the US dollar this morning, amid optimism that the UK economy will rebound when lockdown restrictions are lifted.

Sterling rose to $1.395, up half a cent, having already hit its highest level since the end of April 2018 on Monday.

It also struck a new nine-month high against the euro, of €1.148, before dipping back.

With the vaccination programme running at pace, and new Covid-19 infections falling, there is optimism about the UK recovery (Boris Johnson will outline the roadmap to ease restrictions next week).

Ricardo Evangelista, senior analyst at ActivTrades, says sterling is beating expectations in 2021:

The British pound continues to edge higher versus other major currencies during early Tuesday trading. Sterling’s performance is defying the forecasts of most analysts, who saw the post-Brexit constraints and the economic impact of the pandemic in Britain as strong headwinds for the currency.

However, the pound is finding support amidst a global rise in investor confidence, that is proving positive for risk related assets, and because of the success of the British vaccine rollout, which has placed the country ahead of its peers and in pole position for the post-pandemic economic rebound.

In other mining news, BHP Billiton has announced a record $5.1bn interim dividend as half-year profits hit a seven-year high on the back of surging prices for iron ore.

The world’s largest miner hiked its interim dividend to $1.01 a share, up from $0.65 a year ago, as strong demand for iron ore cushioned the impact of the pandemic.

My colleague Ben Butler explains:

BHP’s half-year profit fell to US$3.87bn compared to the same period in 2019, driven down mostly by a total of US$2.2bn in exceptional items that included slashing the value of the thermal coal assets and US$200m of covid-related costs.

But profits from its operating business, which is dominated by iron ore, soared by 17% to US$9.8bn.

The company also warned that a Chinese ban on Australian coal was hurting its Mount Arthur coalmine, which BHP is trying to sell.

Shares in mining group Glencore have jumped 3%, after the group reinstated its dividend this morning.

Outgoing CEO Ivan Glasenberg told shareholders that the company had steered through “recessionary conditions in the first half to a strong price recovery for most commodities in the second”.

Although Glencore made a statutory loss of $1.9bn due to various impairment charges, adjusted earnings rose slightly – with strong growth at its marketing and industrial metals business offsetting the impact of weaker coal prices

This helped the company to trim its debt pile to $15.8bn, down on the near $20bn hit last summer when the company suspended its dividend.

Glencore is also pledging to reach net zero carbon emissions by 2050 (although this doesn’t include selling off its coal mines).

Glasenberg argues that the mining business has an important role to play in moving to a low-carbon economy, as commodities such as copper, nickel, zinc, vanadium and cobalt are used in key green technologies (such as batteries and renewable energy systems).

As the world focuses on the pathway to recovery from Covid-19, it is clear that meeting the goals of the Paris Agreement has taken on even greater urgency.

While innovation and technological advances have transformed how we live and work, the commodities needed to enable this have not. Our commodities are essential in developing all facets of infrastructure needed to deliver the goals of energy and mobility transition.

Hopes of a ‘large and fast-moving’ US stimulus package are driving the global stock market rally, says Stephen Innes, chief global markets strategist at axi.

The real stock market boosting surprise this week may have to do with the quick end to former US President Trump’s impeachment on Saturday as the Democrats didn’t bring forward witnesses, which could have dragged things out for weeks.

The reason for the decision appears to be that the Democrats want to entirely focus on the proposed fiscal stimulus package and not be encumbered by the impeachment process, which was never likely to result in a guilty verdict anyway.

So, I think the market reaction this week is bang on: the probability of a large and fast-moving fiscal package by mid-March has just gone up exponentially.

European stock markets are more muted today, after hitting their highest levels in almost a year on Monday.

The Europe-wide Stoxx 600 is up just 0.1%.

The UK stock market has opened higher, with the FTSE 100 gaining 40 points or 0.6% to 6796 points.

That’s its highest level since 15 January, as the Footsie heads back towards the 11-month highs seen earlier this month:

Banking giant HSBC is the top riser, up 3.2%, with mining companies and oil producers also rallying.

UBS Wealth Management predict that Asia’s stock markets will remain strong this year (the Year of the Ox).

They argue that the region’s macro momentum is strong, and that we are only at the start of the post-pandemic recovery.

Asian stocks have already risen 12% so far this year, outperforming global equities by 6.5 percentage points, while the MSCI Asia ex-Japan index is up 92% since the lows of March 2020.

Mark Haefele, chief investment officer at UBS Global Wealth Management, sees further gains:

“While the rally in Asia may be more measured from here on, we still see another 10% upside for Asia ex-Japan equities by the year-end. We favour reasonably priced quality cyclical names, especially in the internet, memory and media sectors.

We see catch-up opportunities in select industrials, financials, materials and energy.”

Asia-Pacific markets have had another strong day.

Japan’s Nikkei has hit a fresh 30-year high today, jumping 1.28% or 383 points to close at 30,467 points.

In Hong Kong, the Hang Seng surged by 1.8% as trading resumed after the Lunar New Year break.

Jeffrey Halley of OANDA says:

Although not showing quite the same momentum as yesterday, a combination of dovish central banks, and the ever-present US stimulus and vaccine hopes have kept equity markets in business as usual mode.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Global stock markets are continuing to strengthen, with stock prices at record levels.

Investors are showing growing confidence that Covid-19 vaccines will calm the pandemic, and that president Joe Biden will drive through a $1.9 trillion stimulus package.

The MSCI All Country World Index has risen steadily since the start of February, and on track to extend that run today as Wall Street reopens after a long weekend.

Jim Reid of Deutsche Bank explains that investors are showing an appetite for risk:

The global reflation theme continued apace yesterday, and risk assets showed continued strength across multiple asset classes. In fact the MSCI World Index, which includes a range of developed world equities, rose for an 11th straight session, marking the longest winning streak for the index since January 2018.

If it manages to notch a 12th gain today, it’ll become the longest winning run since December 2003, back when Arsenal were on their way to winning the Premier League unbeaten, and before most UK households had internet access.

The FTSE 100 surged by 2.5%, or 166 points, to a one-month closing high yesterday, and is on track for further gains today – with IG calling the index up another 20 points.

The UK’s fast deployment of Covid-19 vaccines has raised hopes of an easing of the lockdown – although prime minister Boris Johnson did sound cautious last night, insisting that infection rates need to be really low.

Naeem Aslam, chief market analyst at Think Markets, says investors are hopeful that this current lockdown will be the last.

Over 15 million people have received coronavirus vaccine in the UK, and this is giving the government confidence that they can not only achieve their other targets but also ramp up their vaccination process.

In addition to this, if one looks at the number of people losing their lives because of coronavirus along with the hospitalization rate and new people catching coronavirus, all of them have started to drop quite a lot from their recent high.

But…. this rally further widens the disconnect between the stock market and the real economy – and looks through the damage caused by the pandemic.

On a price-to-earnings basis, stocks have rarely looked pricier.

The agenda

• 10am GMT: Second estimate of eurozone GDP in Q4 2020
• 10am GMT: ZEW index of German economic sentiment
• 1.30pm GMT: Empire State survey of manufacturing in the state of New York