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Futures Rebound As Stimulus Optimism Trumps Mutant Virus Gloom

S&P futures erases their drop to trade 0.3% higher as of 730 a.m. ET, tracking gains for shares across European markets, which reversed an earlier Asian loss. Emini futures fell as much as 0.6% earlier despite the successful passage of the covid relief bill late on Monday in both the House and the Senate. The S&P dropped 0.4% on Monday as optimism over the $900BN Covid-19 relief bill was offset by the emergence of a mutant variant of the virus and a frenzy of lockdowns and travel curbs to contain it.

Nasdaq 100 futures outperformed the S&P 500 after U.S. lawmakers cleared a $2.3 trillion year-end spending bill and stimulus package yesterday, which now passes to President Donald Trump to sign. Treasuries and the dollar pared an earlier advance. The stimulus package, the first congressionally approved aid since April, comes as the pandemic accelerated in the United States, slowing the economic recovery.

Tuesday’s rebound follows a scare on Monday as countries across the world shut their borders to the UK because of fears over the new variant of the disease, snarling one of Europe’s most important trade routes just days before Britain is set to leave the European Union. A full lockdown came into force in London and southeast England. Europe and regions from Canada to Hong Kong have suspended travel links to the island nation, piling pressure onto the government as it tries to salvage a free-trade agreement with the European Union.

The discovery of the new strain, just months before vaccines are expected to be widely available, renewed fears about the economic impact of new lockdowns to curb the virus that has killed about 1.7 million people worldwide. In response, European shares slumped to their biggest one-day loss in nearly two months on Monday but the sentiment reversed on Tuesday after traders said Tuesday they assumed vaccines would still be effective against the new strain.

The new strain “is a bump in the road, but that road is still leading to a much stronger recovery in the second half of next year,” said Hugh Gimber of J.P. Morgan Asset Management. “Markets are a lot calmer today because of confidence that there is a big build up of pent-up demand and a return to much stronger levels of activity in the second half of next year.”

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