A little more from Andy Haldane:

Back on Wall Street, the S&P 500 has now returned to its level on 31 December 2019, meaning it has recovered much of its Covid-19 losses.

Two Bank of England policymakers have updated MPs about the impact of Covid-19 on the UK economy, at their reappointment hearings today.

Chief economist Andy Haldane told the Treasury committee that there will “inevitably” be some long-term scarring of the economy as a result of the Covid crisis, including a hit to employment.

The two key channels through which scarring of the economy’s longer-term potential might arise is through reduced business investment and dynamism, hitting the stock of physical capital, and through high unemployment depleting the skills of the workforce and shrinking the stock of human capital.

In the MPC’s illustrative scenario published in May, it was assumed that scarring of businesses resulted in the productive capacity of the UK economy being persistently lower by around 1¼%. There was little assumed scarring of the labour market. In practice, there is the potential for scarring effects in the labour market – for example, if sectoral or skills mismatches between workers and companies make it difficult for people to find new jobs, raising the economy’s equilibrium rate of unemployment and lowering its productive potential. Whether the economy experiences scarring, through businesses or workers, will depend on the actions taken by firms, as well as on policy actions taken by Government.

Professor Silvana Tenreyro, an external member of the Monetary Policy Committee, predicted that Covid-19 will have a complex impact on the economy:

Rather than a radical change, I think this shock could accelerate pre-existing technological trends; for example, more remote working, a switch to online retail, distance learning and more investment in artificial intelligence. Added to pre-existing climate change concerns, there may be a permanent shift away from long-distance air travel. These changes may have knock-on macroeconomic impacts. More remote work, e-commerce and distance learning could weight on the demand for and the rental price of commercial real estate.

The switch to online retail and greater AI could have implications for aggregate productivity, as well as driving changes in the share of income accruing to workers versus capital. Changes are also likely to depend on the success of policies put in place – countries have the opportunity to shape the nature of any turning point coming from the crisis.

Meanwhile in Brussels.....

Amid all the optimism about the “promising” Oxford vaccine, biotech investor Peter Kolchinsky is recommending caution:

AstraZeneca’s shares have now dipped back from that record high, but still up around 1% today.

The company has told shareholders that the latest trial results from Oxford won’t “impact” its financial guidance this year, as the cost of developing the vaccine will be offset by funding by governments and international organisations.

There’s not much reaction in the wider stock market to today’s trial update, with the FTSE 100 still down around 0.6% or 38 points at 6252.

That’s probably because a lot of good vaccine news is already ‘priced in’ -- with so many trials underway, investors are hopeful that some will be effective, and reach the mass market.

AstraZeneca has also updated the City about the Oxford Covid-19 vaccine, which it is producing.

It highlights that interim results from the trials show that AZD1222 induced a T-Cell response (a key part of the body’s immune response), as well as antibodies (which bind to, and neutralise, the virus).

Professor Andrew Pollard, Chief investigator of the Oxford Vaccine Trial at Oxford University, says that a ‘two-dose’ strategy may work well:

“The interim Phase I/II data for our coronavirus vaccine shows that the vaccine did not lead to any unexpected reactions and had a similar safety profile to previous vaccines of this type. The immune responses observed following vaccination are in line with what we expect will be associated with protection against the SARS-CoV-2 virus, although we must continue with our rigorous clinical trial programme to confirm this. We saw the strongest immune response in participants who received two doses of the vaccine, indicating that this might be a good strategy for vaccination.”

Mene Pangalos, AZ’s executive vice president for BioPharmaceuticals R&D, says the results give the firm confidence.

“We are encouraged by the Phase I/II interim data showing AZD1222 was capable of generating a rapid antibody and T-cell response against SARS-CoV-2. While there is more work to be done, today’s data increases our confidence that the vaccine will work and allows us to continue our plans to manufacture the vaccine at scale for broad and equitable access around the world.”

The US stock market has started the new week with small gains.

The Nasdaq index is up 28 points, or 0.3% at 10,532, as it continued to outperform the rest of Wall Street.

The Dow is up just 4 points, or 0.01% at 26,676.

Traders are juggling concerns about the spike in Covid-19 cases with optimism that a Covid-19 vaccine will be developed.

Any readers with a spare £5.5m may be interested to know that Mark Carney’s old house is on the market.

The former Bank of England governor has left the UK, and the Victorian house rented by the Carney family in South Hampstead is now on the market.

And what a house! Eight bedrooms, an cavernous open-plan kitchen, stylish living space and an 81-foot rear garden must have made an agreeable escape when Bank duties allowed. The Mail have published the full photo gallery from estate agents Aston Chase (after the family left, alas, so there are no snaps of Mr Carney wearing an apron or mowing the lawn)

More encouraging Covid-19 treatment news, this time from Pfizer:

Reuters has the details:

German biotech firm BioNTech and U.S. drugmaker Pfizer on Monday reported additional data from their experimental coronavirus vaccine that showed the vaccine was safe and induced an immune response in patients.

The results were disclosed from a trial in Germany testing 60 healthy volunteers, and come after the companies earlier this month reported data from a corresponding early-stage trial in the United State

Some new photos from Brussels:

The euro is just about holding onto its earlier gains, trading at $1.146 against the US dollar (still the highest since March).

Some European markets have shaken off their earlier losses, with Germany’s DAX now up 0.5% today (while the FTSE 100 is still down 0.5%).

Fawad Razaqzada, market analyst with ThinkMarkets, says investors seem confident that a deal on the €750bn Recovery Fund is imminent.

The euro was leading the gains after European leaders made progress in negotiating a historic stimulus package, according to media reports. This also explains why the DAX has also been outperforming, and why Italy’s borrowing costs fell to their lowest since early March today as the rally in riskier eurozone government debt saw the spread between Italian 10-year and German bund yields, an important gauge of risk in the region, tighten....

The €750 billion stimulus is going to help speed up the recovery in the euro area, where the virus situation also appears to be under control compared to the US. Investors are therefore anticipating the eurozone to perform relatively better than the US economy, driving the exchange rate higher. However, this is a global issue and if the vaccines prove not to be very effective and coronavirus does not go away, then we may well see haven demand come back for the US dollar and undermine risk assets, including the EUR/USD. But that’s a worry for another day and right now the path of least resistance is to the upside.

After a brief sleep, European leaders are returning to their Brussels summit to keep thrashing out the details of the Covid19 recovery fund.

German chancellor Angela Merkel told reporters that she hopes they can reach agreement despite the difficult negotiations in recent days.

France’s Emmanuel Macron spoke about the spirit of compromise (with the ‘frugal’ North Europeans seemingly accepting the idea of grants, although not the scale which the South says it needs).

In another gloomy sign, many UK manufacturers are planning to cut jobs due to the financial cost of Covid-19.

And companies across the board are cutting back on investment, meaning a long-term hit to growth and productivity. More here:

Back in the City, shares in UK housebuilders are rallying amid signs of a post-lockdown ‘mini boom’.

Online estate agent Rightmove has reported a surge in inquiries in recent weeks as the market emerges from its Covid-19 lockdown.

Its latest figures show that the average price of a property coming on to the market in Britain reached £320,265 this month, above the previous record of £312,625 reported in March, just before the housing market was put on hold.

This has lifted Taylor Wimpey, Barratt Development and Berkeley Group by over 1% each.

Pent-up demand is one factor, along with the UK stamp duty holiday announced earlier this month. Some people have also decided to move to a larger home, or out of cities, after months of working from home.

Former Finnish prime minister Alexander Stubb is confident that European leaders are close to a compromise deal.

Stubb, a veteran of EU summits during the eurozone crisis, reckons the EU is actually showing uncommon “speed and force”, although the end result will still be sub-optimal:

A peek at the FTSE 100 leaderboard shows that Covid-19 are moving shares today.

Pharmaceuticals firm Astrazeneca hit a record high this morning, over £96 for the first time, as traders anticipate upbeat data from its early stage human vaccine trials later today.

But airline group IAG is the top faller, down 3.5%. On the FTSE 250, holiday firms TUI and Carnival are also falling, suggesting concerns over the travel industry.

Russ Mould, investment director at AJ Bell, explains:

“Markets had a shaky start to the new week with mixed progress in Asia and declines across Europe including a 1% decline in the FTSE 100 to 6,224.

“One of the select few stocks to rise on the FTSE 100 was AstraZeneca, extending a rally that’s been in motion since mid-June.

“Investors have warmed to AstraZeneca both on hopes that it will successfully develop a treatment for Covid-19 and the fact the company is making progress with other drug developments. Early stage trial data is set to be published today on its coronavirus vaccine so the shares could be in even more demand if the news is encouraging.

European stock markets have started the new week with a bit of a bump.

All the main indices are in the red, with equities failing to benefit from optimism of a recovery deal.

The EU-wide Stoxx 600 index has dropped by 0.6%, led by losses in Paris and Madrid. The energy sector is the worst performer, followed by consumer companies, telcos and banks.

Paul Donovan of UBS Wealth Management says some investors are anxious about the remorseless rise in Covid-19 cases in America, especially as some US stimulus payments run out soon:

The leaders of the EU have failed to come to an agreement on the recovery fund, and are still talking. This really should not be a surprise. Every EU summit of any importance always drags on longer than scheduled. It seems that EU leaders are only capable of agreeing anything when massively sleep-deprived. The anti-fund/frugal faction has agreed to the principle of grants being part of the recovery fund.

US fiscal policy is in focus, with US President Trump to meet Republican leaders to discuss the fifth fiscal package of the pandemic. There is some urgency, as the additional unemployment benefit payments are due to expire at the end of this month. The economy would not respond well to an abrupt ending of these payments.

There has also been some concern in markets about the spike in reported cases in the US. Fear of the virus is less than it was, so the economic response is less than it was – but fear has clearly risen. This has to be balanced against the expectation of further fiscal help. Results of Oxford University’s vaccine trial are due today.

Back in the UK, Marks & Spencer may soon add to the torrent of retail jobs cuts triggered by the coronavirus recession.

My colleague Jasper Jolly explains:

Marks & Spencer is reportedly planning to cut hundreds of jobs this week in the latest blow to high street retailers hit hard by the coronavirus pandemic.

An announcement about job losses could come within days, Sky News reported, with total redundancies potentially reaching several thousand when existing restructuring plans are taken into account.

It comes at a torrid time for the British high street, with thousands of job losses announced this month. John Lewis and Boots reported 1,300 and 4,000 job losses respectively, including store closures, while companies including the Topshop owner, Arcadia, furniture chain Harveys and menswear retailer TM Lewin have confirmed plans for thousands of redundancies.

The fashion retailer Ted Baker is preparing to axe at least 500 jobs – more than a quarter of its UK workforce. This is in addition to the 160 job cuts announced in February.

Failure to agree a rescue package would be a heavy blow for the EU - both politically and economically.

Our Brussels correspondent Jenniter Rankin writes:

The hardest-hit countries already have access to a €540bn financial cushion, but France, Germany, Italy and Spain see this as inadequate to the scale of the looming recession.

Leaving Brussels empty-handed would also be a damaging political blow, tarnishing the EU’s prestige and raising questions about its ability to act in a crisis. It would also undermine the newish leaders of the EU institutions, European commission president Ursula von der Leyen, the architect of the recovery plan, as well the European Council president, Charles Michel, the main deal broker.

Even with a deal, this bitter summit has exposed poisonous mistrust between some leaders, as well as the EU’s struggle to deal with nationalists in central Europe, who are feared to be trampling on Europe’s basic values. A few bad-tempered days in Brussels may leave political scars.

In another sign of the tension in Brussels, French President Emmanuel Macron reportedly banged his hand on the table and threatened to walk out of the discussions.

Macron’s target - the ‘frugal four’, who he accused of undermining the European Union by trying to shrink the stimulus plan.

The BBC’s Gavin Lee writes:

French officials tell me President Macron “banged his fists” on the table in the early hours of Monday morning, as he told the “frugal four” that he thought they were putting the European project in danger.

An Italian diplomat said Prime Minister Giuseppe Conte told Mr Rutte: “You might be a hero in your home country for a few days. But after a few weeks you will be held responsible for blocking an effective European response to Covid-19.”

European unity was in short supply at the summit, as leaders bickered over the details of the desperately needed recovery fund.

At one point, Hungary’s prime minister, Viktor Orbán, accused Dutch PM Mark Rutte of acting like a oppressive communist ruler, for demanding oversight of how the money would be used.

Our Daniel Boffey explains:

Rutte has insisted he cannot be expected to take on extra national debt in order for the EU to make cash payments to member states without his parliament having a say.

In response, Orbán, the nationalist prime minister of Hungary, who was an anti-communist dissident in his youth, accused Rutte of aping Soviet methods to crush dissent by failing to properly set out the terms on which funds would be blocked.

The Netherlands is seeking reassurance that commonly issued debt will be properly spent and wants the ability to hold back disbursements where there are governance concerns.

“They would like to introduce a new mechanism that didn’t exist until now,” Orbán told reporters, of the Dutch proposal for a country to be able to stop funding to member states undermining the rule of law. “I think it is questionable whether it has a basis in the treaty at all. I am coming from an ex-communist country. When the communist regime decided to attack us, they use unclarified legal terms exactly as the same as written in the proposal of the Dutch man … Saying ‘general deficiencies’. When I was arrested by the police and I asked them what I had done which is illegal, they say general deficiencies. What the hell does it mean?”

Italian government bonds are also rallying this morning - suggesting that investors expect a deal on the recovery fund (eventually).

The interest rate, or yield, on Italy’s 10-year debt has fallen to 1.14%, the lowest since early March.

Italian bond yields had spiked during on March, on fears that the Covid-19 slump would drive its national debt to unsustainable levels.

The euro has also nudged a three-week high against the pound this morning, at 91.38p.