World markets happy with EU recovery plan as metals shines

London/Singapore — The euro traded at an 18-month high on Wednesday as financial markets continued to bask in the afterglow of the EU recovery fund agreement deal, while a precious metals boom took silver’s recent gains to 20% and gold to a nine-year high.

News from China that the US had told it to close its consulate in Houston caused some risk aversion in European trading, but stock markets had been consolidating anyway after their recent surges.

Asian stocks had spent most of the day dithering and Europe’s morning dip added to the list of gyrations keeping traders occupied.

Silver gained 5% to a six-year high of $23 an ounce before profit-taking struck. Gold’s high of $1,865 an ounce took its gains this month to nearly 20%.

The euro was perched above $1.15 for the first time since early 2019, and despite a minor up-tick on the Houston headlines the dollar was at its lowest against a basket of the main world currencies since March.

“With the US struggling with the pandemic, there is a growing divergence of growth expectations with Europe and Asia Pacific,” said RBC analyst Alvin Tan. “We’ll keep an eye on what is happening in Houston, but the fact is that in a typical up-cycle for the global economy the dollar tends to underperform, of course”.

China’s foreign ministry spokesperson Wang Wenbin told a regular daily news briefing that the US had abruptly told Beijing on Tuesday to close its consulate. “We urge the US to immediately revoke this erroneous decision,” he said. “Should it insist on going down this wrong path, China will react with firm countermeasures.”

China’s offshore yuan weakened past 7/dollar on the news and was last at 7.0028. The dollar index edged up 0.2% from March lows it hit on Tuesday.

“That headline triggered some profit taking, quite an aggressive one in dollar/yuan, dollar/offshore yuan,” said Christy Tan, head of markets strategy for Asia at National Australia Bank in Singapore. “It’s a timing issue. All this is coming as tensions between the US and China are escalating. This added fuel to fire.”

Pedal to the metals

The pan-European Stoxx 600 extended its early drop to stand down 1% by 9am GMT. Commodity-linked stocks along with travel and automotives provided the biggest drags with falls of about 2%.

S&P 500 futures were down 0.5% following Tuesday’s mixed session on Wall Street, amid concern about rising US coronavirus cases and political disagreement over the next US fiscal aid package.

The US reported more than 1,000 deaths from Covid-19 on Tuesday, the first time that milestone has been passed since June. US President Donald Trump warned that things would probably get worse before they got better.

The euro was last at $1.1515 after going as high as $1.1547, its best since January 2019. The Australian dollar held near a year-high of $0.7144, which was bolstered by upbeat Aussie retail sales data.

Copper prices dropped 1.3% after the Houston headlines. Shanghai and Dalian iron ore futures rose for a second straight session on expectations of strong Chinese demand.

Oil prices remained range-bound, hurt by inventory concerns. Brent futures slipped 0.4% to $44.14 a barrel and US crude fell 0.5% to $41.70 a barrel.

Reuters