EU recovery fund lifts shares to five-month high

World shares climbed to their highest since February and the euro briefly hit its strongest since March on Tuesday, after EU leaders sealed a 750 billion-euro post-pandemic recovery plan. Hopes that vaccines against the COVID-19 disease might be ready by the end of the year also supported the rally, following promising early data from trials of three potential vaccines.

News of the EU deal pushed the euro as high as $1.1470, while Germany’s DAX hit pre-COVID levels and other main EU indexes rose 1.25% - 2.2%.

Italian, Spanish, Greek, Portuguese, Polish and Hungarian government bonds rallied, reflecting that the countries will be allocated some of the largest amounts from the new fund when scaled to the size of their economies.The Netherlands and Austria, which were part of a group of “frugals” that had been calling for stricter terms for the funding, saw their borrowing costs inch higher, along with Germany, France, Sweden, Finland and Denmark.

“It’s a significant step towards a more integrated and united Europe, which should boost the region’s appeal to global investors and facilitate its re-rating,” said Barclays’ head of European equity strategy Emmanuel Cau. “The rise of the euro isn’t a major risk at the moment because it illustrates the lower risk premium for the region,” though it might weigh on exporters such as Germany at some point down the line, he added.

Major corporate earnings came thick and fast Tuesday morning, with UBS announcing a net profit of $1.23 billion for the second quarter of 2020, down 11% from the same period last year. Analysts polled by the Swiss lender had expected a net profit of $973 million.

Swedish automaker Volvo swung to a first-half operating loss but said it expects businesses to recover as countries emerge from lockdown measures, having seen a strong rebound in China since the economy reopened.

At the bottom of the European blue chip index, shares of sports betting group GVC plunged 12.6% after British tax authorities announced a probe into the company’s former Turkish gambling unit.

Commodity markets also gained. Brent crude oil was up 31 cents at $43.59, while US crude (WTI) gained 19 cents to $41.00, though both were within July’s tight $2-$3 trading range.

Gold rose to a nine-year high as expectations of higher inflation from increased stimulus overshadowed the resultant gain in risk appetite.

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