Santa made a lacklustre attempt to deliver his traditional end of year rally yesterday, as world stocks squeezed out a third day of gains and the pound and the euro both stayed firm after the latest bout of Brexit drama.
UK Prime Minister Theresa May's survival in a late night no-confidence vote has not changed the markets' questions on Brexit but along with tentative signs of truces in the US-China trade war and Italy's budget feud it was enough to keep them jolly.
The Nikkei and other Asian stocks had pushed roughly 1 percent higher and Europe enjoyed a largely uneventful morning. Even the long-awaited confirmation that the European Central Bank was ending its quantitative easing programme did little to rouse activity.
The euro rose 0.2 per cent to $1.1390, having largely traded in a $1.16 and $1.12 range since August. That made the dollar a touch softer while the pound was up for a second day at $1.2665.
Short-dated Italian bond yields – which move inversely to price – hit their lowest in six months after the country's government confirmed it would cut its deficit goal for 2019, potentially end-ing months of wrangling with Brussels.
Two-year Italian bond yields tumbled to 0.51 per cent, which took them back to where they were before a late May eruption of tensions triggered the worst day for short-term Italian debt in 25 years. Italy’s five-year and 10-year government bond yields dropped to their lowest level in 2 1/2 months, while the closely watched Italy/Germany 10-year bond yield spread improved to its tightest since the start of October.
On Brexit, Ms May was heading to an EU summit in Brussels after her confidence vote win. Markets reckon Ms May’s continued premiership for now makes a “no deal” Brexit less likely at the margins.
The pound was trading at $1.2670 as the first US trading started.
In Asia, gains were concentrated in Chinese shares, with Chinese blue-chips up 1.5 per cent and Hong Kong's Hang Seng index gaining 1.1 per cent. Japan's Nikkei stock index ended 1 per cent higher, while Australian shares gained 0.1 per cent.
Markets are slowly becoming less pessimistic about the chances of a Sino-US trade deal after a slew of news this week pointed to easing tensions between the two.
In the commodities markets, oil prices steadied, under pressure from high inventories but buoyed by a drawdown in US crude stockpiles and the indications that the US-China trade war may be easing.
Copper, which is highly sensitive to China's fortunes, also rose to a one-week high in the metals market at it approached $6,200 a tonne although it remains badly beaten having lost almost 15 per cent this year.