S&P futures and global markets jumped on Tuesday after EU leaders clinched an “historic” deal on a massive €750BN ($860BN) recovery plan for their coronavirus-throttled economies in the early hours of Tuesday, after a turbulent, seemingly endless summit lasting almost five days.

Eminis also got a boost to surpass their June 8 highs thanks to a better-than-expected quarterly profit from IBM, a beat from Coke and on hopes for even more domestic stimulus to prop up an economy reeling from the COVID-19 pandemic.

The EU agreement paves the way for the European Commission to raise billions of euros on capital markets on behalf of all 27 states, an unprecedented act of solidarity in almost seven decades of European integration. Summit chairman Charles Michel called the accord, reached at a 5.15 a.m. (0315 GMT), “a pivotal moment” for Europe.

the RescEU will need a lot more zeros https://t.co/rcUTQqr8d5

— zerohedge (@zerohedge) July 21, 2020

European shares rallied to four-month highs on Tuesday with the Euro Stoxx 50 rising as much as 1.9% during London morning, and the euro touched a four-month high of $1.1470 as both the rumor and the news of the EU deal were bought. Stocks in Italy, likely the biggest beneficiary, added more than 2% and led gains among local exchanges that mostly outperformed U.S. equity futures. Norway’s Adevinta ASA surged as much as 39% after agreeing to buy EBay’s online classifieds business for $9.2 billion.

Many had warned that a failed summit amid the coronavirus pandemic would have put the bloc’s viability in serious doubt after years of economic crisis and Britain’s recent departure.  “This agreement sends a concrete signal that Europe is a force for action,” a jubilant Michel told reporters. French President Emmanuel Macron, who spearheaded a push for the deal with German Chancellor Angela Merkel, hailed it as “truly historic”.

European politicians hope the 750 billion euro ($857.33 billion) recovery fund and its related 1.1 trillion euro 2021-2027 budget will help repair the continent’s deepest recession since World War Two after the coronavirus outbreak shut down economies. Germany Economy Minister Peter Altmaier said that, with the agreement, the chances of “a cautious, slow recovery” in the second half of this year had increased enormously.

We'll see how that goes: it won't be the first time Europe was optimistic about a major deal only to see it all come crashing down. For now, markets like it and a gauge of risk in Europe’s investment-grade debt dropped to the lowest since February. The euro steadied after a recent rally, with some taking modest profits on the Stimulus deal.

Meanwhile, in the US IBM jumped 5.3% premarket after it beat sharply lowered EPS and revenues and signaled higher demand in its cloud computing business, as large corporations accelerate their digital shift. The S&P 500 closed higher for the year and the Nasdaq notched another record closing high on Monday after promising early data from trials of three potential vaccines and a boost from high-flying companies including Amazon.com and Microsoft.

“The market, particularly tech stocks, is rallying on both good news and bad news, that tells us it’s all about momentum and not about the facts,” said Michael McCarthy, chief market strategist at CMC Markets Asia Pacific Pty. “There are concerns we could see significant pullbacks before we make further gains, but at the moment you can’t stand in front of the train that is the Nasdaq 100 Index."

Stocks have been marching higher globally on the back of more government stimulus and a seemingly unstoppable advance in tech names. And speaking of even more stimulus, advisers to President Donald Trump and congressional Democrats were set to discuss the next steps in responding to the coronavirus crisis on Tuesday, with congressional Republicans saying they were working on a $1 trillion relief bill. Meanwhile, new infections raged in Florida on Monday, while California saw improvement, with cases and hospitalizations beginning to stabilize after a surge. Trump also said he would resume holding regular COVID-19 news briefings on Tuesday.

Among other stocks, oil majors Exxon Mobil and Chevron rose 2.2% and 1.4%, respectively, on prospects of higher fuel demand. Other companies reporting stronger than expected data today included Coca-Cola (Q2 EPS 0.42, Exp. 0.41) and Marlboro maker Philip Morris International (Q2 EPS 1.29, Exp. 1.10).

Earlier in the session, Asian stocks gained, led by communications and IT, after rising in the last session. The Topix gained 0.4%, with GMO Cloud KK and Stella Chemifa rising the most. The Shanghai Composite Index rose 0.2%, with Jiangsu High Hope and Beh-Property posting the biggest advances. Record-High Asia Tech at Risk of Running Too Hot: Taking Stock Here are some notable movers in the region.

In FX, the Bloomberg Dollar Spot Index fell for a third day, dropping below 1,200 for the first time in 5 weeks, as risk-sensitive currencies advanced on improved global investor sentiment after European Union leaders reached an agreement on a stimulus package, sending a dollar gauge toward a six-week low. As noted above, the euro first hit a fresh four-month high, before erasing the advance as traders took profits on long positions. The euro was sold by investors that were long against the pound and yen after the deal was reached, according to traders. That resulted in the dollar paring its earlier losses against most commodity currencies. The Australian dollar led gains, climbing 0.8% to a one-year high of 0.7071; Reserve Bank Governor Philip Lowe said earlier the currency was broadly in line with fundamentals.

In rates, the 10Y Treasury was almost unchanged for another day as the Fed's takeover of bond markets makes it virtually impossible for bonds to move; in Europe the spread between Italian and German bonds narrowed to the tightest since February amid optimism that more debt will somehow fix what is a problem caused by record debt. US Treasuries were slightly cheaper across the curve as E-mini futures extended gains. Treasury losses led by long end, cheapening 10- to 30-year yields higher by more than 1bp; 10-year at 0.622% kept pace with bunds while Italian bonds outperform by 2.5bp. 

In commodities, WTI and Brent rallied this morning with sentiment in general bolstered post the European Council coming to agreement overnight. Price action has seen WTI and  Brent September futures hit highs of USD 42.02/bbl and USD 44.60/bbl respectively so far. Newsflow for the complex itself has once again been very sparse with no scheduled events for the complex this week aside from the weekly releases which see the private inventory report tonight; some expectations looking for a draw of 750k, compared to the previous weeks draw of 8.3mln. As a reminder for the complex today the Aug’20 WTI future is set to expire. Turning to spot gold, the precious metal itself not far from the September 2011 high of USD 1827.88/oz; currently, the sessions peak is USD 1824.55/oz.  Upward price action assisted by total gold ETF holdings increasing for 17 continuous days by ~2.68mln/oz, via ING.

Looking at the day ahead, data highlights include UK public sector borrowing for June, Canada’s retail sales for May, and from the US there’s the Chicago Fed’s national activity index for June. Central bank speakers include ECB Vice President de Guindos, while earnings releases feature The Coca-Cola Company, Texas Instruments, Philip Morris and Lockheed Martin.

Market Snapshot

• S&P 500 futures up 0.7% to 3,267.75
• STOXX Europe 600 up 1.1% to 379.60
• MXAP up 1.5% to 167.70
• MXAPJ up 2.1% to 556.00
• Nikkei up 0.7% to 22,884.22
• Topix up 0.4% to 1,582.74
• Hang Seng Index up 2.3% to 25,635.66
• Shanghai Composite up 0.2% to 3,320.90
• Sensex up 1.2% to 37,856.41
• Australia S&P/ASX 200 up 2.6% to 6,156.30
• Kospi up 1.4% to 2,228.83
• German 10Y yield unchanged at -0.461%
• Euro down 0.1% to $1.1437
• Italian 10Y yield fell 6.5 bps to 0.978%
• Spanish 10Y yield fell 2.7 bps to 0.329%
• Brent futures up 2.3% to $44.27/bbl
• Gold spot up 0.3% to $1,823.31
• U.S. Dollar Index little changed at 95.76

Top Overnight News from Bloomberg

• European Union leaders agreed on an unprecedented stimulus package worth 750 billion euros ($860 billion) to pull their economies out of the worst recession in memory and tighten the financial bonds holding their 27 nations together
• Hong Kong is facing its worst coronavirus outbreak, and the city is woefully unprepared for the surge
• A coronavirus vaccine the University of Oxford is developing with AstraZeneca Plc showed promising results in early human testing, and is now set to move into larger trials that are likely to be decisive on how effective they truly are
• The world’s major central banks aren’t purchasing debt fast enough, leaving almost $1 trillion of new sovereign bonds looking for buyers in the months ahead
• Senior U.S. lawmakers, including Secretary of State Michael Pompeo, will seek to use today’s London visit to press Prime Minister Boris Johnson to take an even harder stance on China
• Joe Biden on Tuesday unveiled a $775 billion plan to bolster child care and care for the elderly that would be financed by taxes on real estate investors as well increased tax compliance by high-income earners

Asia-Pac bourses traded firmer across the board following strong handover from Wall Street, as tech shares pushed the SPX into positive territory for the year, whilst Amazon shares gained almost 8%, Tesla over 9%, and IBM rose some 6% after hours following a beat on both top and bottom lines, but notably, the Co. reported an improvement in three out of five units over the past quarter. ASX 200 (+2.6%) was bolstered by its tech and material stocks in what was an in-fitting performance with its peers State-side, albeit BHP shares failed to gain much traction in Aussie trade after reporting a quarterly copper production decline whilst noting 2021 copper output volumes will be slightly lower YY. Nikkei 225 (+0.7%) also felt the tech euphoria, but with upside somewhat hampered by currency dynamics. Elsewhere, Shanghai Comp (+0.2%) took a breather after yesterday’s rally and as the PBoC’s operation resulted in a modest net daily drain of CNY 20bln. Hang Seng (+2.3%) saw a strong performance from the cash open as a number of its large cap stocks remained in firm positive territory, whilst reports yesterday noted the Hang Seng will launch a tech index next Monday to track the 30 largest eligible stocks listed in Hong Kong. Elsewhere, Alibaba’s Hong Kong listing soared over 5% as its founder’s newest venture looks towards a record USD 200bln IPO. Note: Taiwan’s chip giant TSMC rose over 4% amid tailwinds from IBM’s earnings.

Top Asian News

• China Probes Car Inc. Shareholder Linked to Luckin Founder

European equities (Eurostoxx 50 +1.5%) trade on the front-foot as markets react to the historical EU Council agreement overnight which saw EU leaders agree on a EUR 750bln recovery fund (390bln grants, 360bln loans) and EUR 1.074trl 2021-27 budget. The DAX (+1.7%) is currently outperforming its peers as the index briefly returned to marginal positive territory for the year and is now around 4% away from its all-time high posted on February 19th. Aside from events in Brussels, support for the index has also emanated from the autos & parts sector with Continental (+3.8%) a noteworthy outperformer after prelim Q2 revenues exceeded expectations, furthermore, index-heavyweight Bayer (+1.4%) have been granted some reprieve this morning amid a 92% reduction in the Roundup Weedkiller verdict. Elsewhere from a sectoral standpoint, banks sit at the top of the leaderboard following the aforementioned EU agreement, whilst UBS (+3.5%) have also lent a helping hand to the industry after with its Q2 decline in net profit was not as bad as some had feared. Healthcare names are the laggard in Europe (albeit marginally positive on the session) with AstraZeneca (-1.3%) taking a breather from yesterday’s COVID-19-induced gains. Other notable movers include Novartis (-0.9%) after Q2 revenues and EPS fell short of expectations, whilst GVC (-11.7%) sit at the bottom of the Stoxx 600 after HMRC announced it is to expand the scope of an investigation into its former Turkish Business.

Top European News

• Continental Sales Beat Estimates, But Car Supplier Is Wary
• Danske Seen Axing at Least 1,000 Jobs in ‘Significant’ Move
• Ladbrokes Owner GVC Plunges as U.K. Widens Turkish Investigation
• Coal’s Demise Forces $1 Billion Writedown for Swedish Utility

In FX, another upturn in broad risk sentiment, partly tech sector driven, but also backed up by ongoing strength in precious metals, has helped the Aussie extend gains across the board with Aud/Usd eyeing the current 2020 high at 0.7063 and Aud/Nzd rebounding through 1.0700. However, the latest advances were also forged in wake of RBA minutes and comments from Governor Lowe, as the former underlined stabilisation in the economy after a less severe than previously envisaged downturn and the latter stated a desire to see a weaker Aud, but no intention to intervene. Moreover, the Minister for Resources flagged record Chinese demand despite the spat as reason for Australia gleaning protection from even worse post-coronavirus conditions, albeit not accounting for the more recent outbreak in Victoria.

• CAD/NOK/SEK/GBP - The next best performing majors, and ensuring that the DXY remains depressed below 96.000, as the Loonie probes above 1.3500 ahead of Canadian retail sales data with some support from firm crude prices, while the Norwegian and Swedish Crowns continue their ascent vs the US Dollar and Euro, with Eur/Nok now under 10.5100 and Eur/Sek approaching 10.2400. Similarly, Sterling is gathering fresh technical momentum and Cable has probed 1.2700 on the way through the 200 DMA before drifting back, with Eur/Gbp hovering near the base of a 0.9050-10 range as the single currency pares initial gains made on the EU Recovery Fund deal.
• NZD/CHF/JPY/EUR/USD - Relative G10 laggards, with the Kiwi capped ahead of 0.6600, Franc unable to bounce far from 0.9400, Yen caught in a narrow sub-107.00 corridor and Euro waning between 1.1470-24 parameters even though the Greenback has sustained more losses overall. In terms of more specific impulses, Swiss trade data revealed a wider trade surplus and less steep slide in watch exports, Usd/Jpy may be influenced by decent option expiry interest from 107.30 to 107.40 (1.5 bn) and the single currency seems prone to further buy rumour, sell fact trade after the aforementioned EU package that was largely as expected in terms of size and structure. Back to the Buck, some respite after the index dipped below Fib support at 95.622 to 95.610, but not enough to reclaim 96.000 in the run up to June’s national activity index and Redbook sales.
• EM - No real surprise to see the Rand revel in Gold’s illustrious performance and the Rouble rally with Brent, but the Mexican Peso is also benefiting from the rebound in oil.

In commodities, WTI and Brent front month futures have rallied somewhat this morning with sentiment in general bolstered post the European Council coming to agreement overnight. Price action has seen WTI & Brent September futures hit highs of USD 42.02/bbl and USD 44.49/bbl respectively so far, levels which we remain in relative proximity to at present. Newsflow for the complex itself has once again been very sparse with no scheduled events for the complex this week aside from the weekly releases which see the private inventory report tonight; some expectations looking for a draw of 750k, compared to the previous weeks draw of 8.3mln. As a reminder for the complex today the Aug’20 WTI future is set to expire. Turning to spot gold, where the metal remains elevated with the DXY firmer but still capped by 96.00 with the precious metal itself not far from the September 2011 high of USD 1827.88/oz; currently, the sessions peak is USD 1824.55/oz. Upward price action assisted by total gold ETF holdings increasing for 17 continuous days by ~2.68mln/oz, via ING. Elsewhere, overnight updates from mining names including Vale who see iron ore production at the lower end of guidance as the most probable scenario and BHP seeing copper production volumes slightly lower in 2021.

US Event Calendar

• 8:30am: Chicago Fed Nat Activity Index, est. 4, prior 2.6

DB's Jim Reid concludes the overnight wrap

First though let’s look at the news that EU leaders have finally reached a deal overnight on the EU recovery fund. The confirmed final deal includes €390bn of grants, down from the initial €500bn, along with €360bn of low-interest loans. Leaders also agreed on the EU’s next seven-year budget, worth over €1tn. European Council President Michel, said in a press conference following confirmation, that “Europe is strong. Europe is united” and “we have reached a deal on the recovery package and the European budget. These were of course difficult negotiations in very difficult times for all Europeans. This is a good deal. This is a strong deal”.

In terms of the details, to assuage the Frugal 4 the plan will see Denmark, the Netherlands, Austria and Sweden get a boost to their budget rebates, as had been expected. According to the FT, Netherlands PM Rutte also secured a condition that would allow any country to raise concerns that another was not honoring promises to reform its economy and temporarily halt transfers of EU recovery money. The plan also includes a condition to allow a weighted majority of EU governments to block payments to a particular country over rule-of-law violations.

The euro is trading little changed at $1.143 as we go to print which reflects the fact that much of this was already priced in. DAX futures and STOXX 50 futures are up a little over +0.50% and that follows a broadly positive tone across Asia too where the Nikkei (+0.68%), Hang Seng (+1.88%), Shanghai Comp (+0.07%), Kospi (+1.56%) and ASX (+2.03%) are all up. Futures on the S&P 500 are also up +0.15%.

European markets closed ahead of the summit conclusion, but the reaction was positive as investors priced in the strong chance of an agreement given that leaders had been prepare to extend this far. Sovereign debt rallied across the continent, with peripheral debt (in particular Italy’s) leading the advance. In fact by the close, the spread of Italian (-5.3bps) and Spanish (-4.1bps) 10yr yields over bunds had fallen to their lowest levels in over 4 months, with 2y BTP yields actually closing in negative territory again for the first time since early March. Meanwhile the euro itself rose for the 6th time in the last 7 sessions against the US dollar, reaching a 4-month high of $1.145, just shy of the $1.145 closing high for the year reached back in March.

In terms of the broader moves yesterday, equities generally moved higher on both sides of the Atlantic as the promising news on the recovery fund and vaccine developments (more below) came through. By the end of the session the S&P 500 (+0.84%) and the STOXX 600 (+0.75%) had both reached a new post-pandemic high, with tech stocks among the outperformers as the NASDAQ achieved yet another all-time high after the small underperformance last week, gaining +2.51%. Even with the mostly positive vaccine news, the S&P was led by the stay-at-home trade with AMZN (+7.93%), Citrix (+7.64%), and ServiceNow (+6.51%) the best performing stocks in the index, while airlines such as United Airlines were among the worst performers (-4.69%). US Treasuries rallied along with their European counterparts with 10yr yields falling -1.6bps.

On the coronavirus, the main development yesterday came from the Oxford vaccine trial, where results published in The Lancet journal showed that the vaccine led to increased levels of antibodies and T-cells, and did not cause serious adverse side effects. This was as part of the Phase 1 trial that involved 1,077 adults back in April-May. In response to the news, AstraZeneca shares surged to an intraday high of +10.16%, although they later gave up those gains to close just +1.45% higher. It seems it might have been a case of buy the rumor, sell the fact as these results were hyped up last week and perhaps didn’t exceed expectations.

There is no doubt the news over the last few weeks on vaccine developments have been incrementally positive. However it is still likely to be some months before the leaders complete the trial stages and are in a position for mass distribution if we get that far. And with society still needing to find a way to live with the coronavirus, news came through yesterday of further restrictions in the US, with Chicago announcing they were retightening restrictions on bars and restaurants, and NY Governor Cuomo threatening to close all bars and restaurants if social distancing rules continued to be broken. That said, in three of the worst affected states, case growth was below the previous 7-day average, with Florida (3% vs. 3.8% previously), California (2.3% vs. 2.7%) and Arizona (1.1% vs. 2.3% previously) seeing a slowdown in the number of new cases. The US overall saw cases rise by 1.5% vs. the weekly average of 1.9%. There continues to be some Monday effects as states try and catch up from lower testing levels on the weekend, however 7-day averages for these states continue to slow slightly from what we saw 1-2 weeks back. The attention now moves to how the states’ economies have been affected and how quickly they can more fully suppress the spread.

Against this backdrop, and worries that rising case growth in the southern US has in turn led to a reversal in the economic recovery, US stimulus talks have taken front stage as there will be concerns for how much financial conditions could tighten in the US if something is not done by the end of the month. Yesterday, White House officials met with senior Republican Congress officials to hammer out details of the newest relief bill. U.S. Treasury Secretary Mnuchin said that the next round of stimulus will focus on incentives for getting children back to school and workers back to their jobs. He noted that Republicans are “starting with another trillion dollars”, which is a change from senators who said $1tr was their ceiling. House Republican leader McCarthy, told reporters that the initial Republican proposal would include cutting the payroll tax, which has been a central demand of President Trump, and will include another round of direct stimulus payments to individuals. Though the direct payments may be more tailored this time around. One big sticking point for the GOP and Democrats will be any additional aid for state and local governments, and Democratic proposals to keep supplemental payments for unemployment insurance at the $600. Overnight, Bloomberg has reported that Mnuchin and White House Chief of Staff Mark Meadows will meet House Speaker Nancy Pelosi and Senate Democratic Leader Chuck Schumer today afternoon to start negotiations on the stimulus bill.

In other news, Bloomberg has reported that Judy Shelton, President Donald Trump’s pick to join the Federal Reserve’s Board of Governors, was poised to clear a key hurdle to confirmation after Louisiana Senator John Kennedy said overnight that he would back Shelton. Shelton and fellow nominee Christopher Waller, director of research at the St. Louis Fed, will finally receive their committee votes more than five months after appearing before the panel to answer questions. The committee will meet at 2 pm Washington time.

Back to markets and another asset class that performed strongly yesterday were precious metals, which have done well this year on the back of demand for haven assets and high central bank liquidity. By the close, gold had reached a fresh 8-year high of $1,818, with the advance cementing its performance as one of the top assets on an YTD basis, being up +19.80% since the start of the year. Meanwhile, silver advanced +3.01% to reach a 3-year high, and both platinum (+0.98%) and palladium (+1.49%) recorded strong performances. Other commodities had a more subdued performance however, with Brent Crude (+0.32%) and WTI (+0.54%) both just slightly higher.

There wasn’t a great deal on the data front yesterday, though Germany’s PPI reading showed producer prices falling by -1.8% year-on-year in June (vs. -1.7% expected). The other data out was the Euro Area current account balance, with the current account surplus in May coming in at €8.0bn, which was its lowest level since June 2015.

To the day ahead now, and data highlights include UK public sector borrowing for June, Canada’s retail sales for May, and from the US there’s the Chicago Fed’s national activity index for June. Central bank speakers include ECB Vice President de Guindos, while earnings releases feature The Coca-Cola Company, Texas Instruments, Philip Morris and Lockheed Martin.