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Stocks give guarded welcome to U.S. stimulus, wary on Brexit



Sterling slipped 0.8% to $1.3408 after several European countries closed their borders to the UK as the country entered a tougher lockdown to fight a new strain of coronavirus.

Prime Minister Boris Johnson will chair an emergency response meeting on Monday to discuss international travel and the flow of freight in and out of Britain.

In the United States, Republican U.S. Senate Majority Leader Mitch McConnell said an agreement had been reached by congressional leaders on a roughly $900 billion COVID-19 relief bill.

The news saw futures for the S&P 500 jump at first, only to fade back to flat as the morning progressed.

MSCI’s broadest index of Asia-Pacific shares outside Japan dithered either side of flat after hitting a string of record peaks. Japan’s Nikkei added 0.5% to its highest since April 1991.

Analysts at BofA noted a huge $46.4 billion flowed into equities in the latest week, while the outflow from cash was the largest in four months. There were record flows into tech shares and large flows to the consumer sector, healthcare, financials, real estate and value stocks.

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BofA chief investment strategist Michael Hartnett said a “sell signal” had been triggered for the first time since February as cash levels declined to 4.0% in the latest Global Fund Manager Survey.

“Positioning is getting over-extended as policy support and profits are peaking,” he said in a note. “Expectations for higher growth, inflation and lower interest rates have become consensus and investors are positioning for a very rosy scenario of low volatility and high growth.”

A CROWDED TRADE

Another popular trade has been shorting the U.S. dollar and again positioning was looking overextended by many measures, giving the currency some respite on Monday.

“FX markets await final outcomes of a possible Brexit deal and U.S. fiscal package,” said Ned Rumpeltin, European head of FX strategy at TD Securities.

“We remain biased to fade any ‘good news’ kneejerk USD-selling on both fronts, however. These factors look fully priced and the short-USD trade appears increasingly crowded.”

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