The main US benchmarks hit new record highs on Tuesday as global stock markets had mixed results after losing ground in the previous session.
On Wall Street the S&P 500 index passed the 3,700 points mark to end the day 0.3 per cent higher. Meanwhile, the tech-heavy Nasdaq Composite gained 0.5 per cent and the Dow Jones Industrial Average was 0.4 per cent higher.
Europe’s Stoxx 600 rose 0.2 per cent and the FTSE 100 index finished the day less than 0.1 per cent higher. In Asia, though, the Nikkei 225 in Tokyo and Hong Kong’s Hang Seng index both fell, by 0.3 per cent and 0.8 per cent respectively.
Meanwhile, the pound slipped on Tuesday as investors weighed up Britain’s chances of striking a post-Brexit trade deal with the EU in make-or-break talks this week.
The currency weakened to a low of $1.329 after British officials reported “no tangible progress” in UK-EU trade talks, but regained some ground when the UK said it would ditch parts of a controversial bill that breached Britain’s EU withdrawal treaty. By the evening it was down 0.2 per cent against the dollar at $1.335.
The move by Boris Johnson’s government on the previously agreed treaty was seen as a gesture that boosted chances of the two sides sealing a deal.
Sterling has risen steadily against the dollar since mid-September, boosted by expectations that some form of agreement could be reached, although it has been more volatile in recent months than the dollar and the euro.
This week one-month implied volatility for sterling, a measure of expected price swings over the period, has hit its highest level since the first days of April, following a coronavirus-induced sell-off of global assets in March.
“This doesn’t tell you markets are pricing in no deal,” said Trevor Greetham, investment strategist at Royal London Asset Management. “But it tells you market participants are anxious.”
Brexit talks were driving swings in the currency, said Christopher Jeffery, investment strategist at Legal & General Investment Management, because a no-deal outcome could deepen Britain’s economic contraction and prompt the Bank of England to introduce negative UK interest rates for the first time.
Investors had unwound earlier bets the BoE would make such a move. “People are once again making the link that if we do make a no-deal outcome we will have the negative rates debate back on the table,” Mr Jeffery added.
The oil price, which was buoyed last week by the Opec+ group agreeing to curtail planned increases in production, drifted. Brent crude, the international benchmark, settled 0.1 per cent higher to $48.84 a barrel. WTI, its US counterpart, was down 0.3 per cent at $45.60.
The Treasury yield curve flattened marginally, as longer-dated Treasuries advanced. The difference in yields between the two and 10-year Treasury fell 0.01 percentage points to 77 basis points, marking a retreat from a three-year high hit last Friday.
“Markets are consolidating,” said Ben Laidler, chief executive of Tower Hudson Research, after global stocks, as measured by the FTSE All-World index, climbed more than 12 per cent in November and continued rallying in the first few days of this month.
“You’ve had two big themes: coronavirus vaccines and the possibility of US [economic] stimulus,” he added. “But investors are concerned about markets getting too far ahead of the current macroeconomic situation.”
Additional reporting by Eric Platt in New York