INSIGHTS

Duncan Donald

Thu, Dec 24


A Brexit Deal has been reached - Finally relief as the markets await the details of the agreement

Finally, the UK and the EU have reached an agreement on the divorce on the 31st December.  After 4 and a half years agreement was sought after an eleventh hour agreement on fishing rights in UK waters.  The immediate reaction of the Pound and the FTSE was somewhat muted after a poor start to the week after detrimental Covid infection numbers, heightened lockdown measures having to be issued and at that time it looked like no deal was creeping back towards looking more likely. However after Reuters reported on Wednesday that a deal was imminent, this coupled with UK Prime Minister Boris Johnson and Ursula Von Der Leyen stepping in and taking a more active role in the negotiations brought hope and GBP/USD revisited last week's highs around 1.3600.  

 

As the clocks ticked towards market close it was announced that agreement had been reached with Von Der Layen being the first to address the public, stating satisfaction that they had got there finally. Boris Johnson claimed that all that was promised had been delivered upon whilst retaining the sovereignty that the UK public had desired. The immediate market reaction was not one of any impetus at all with the FTSE and Pound relatively unmoved. Naturally a great deal will be pinned on the granular detail of the vast agreement. The deal will be passed to parliament in the next week to digest the 2000 pages before they vote on the passing of the agreement, and whilst they will be voting on this deal or no-deal it cannot be taken as a given it will be passed both in the UK and across Europe. So for now, the UK trade and industry can have a more assured Christmas but the challenges of the next week for the UK PM will be tricky if it's proven he has not delivered at the level the headlines suggest. But for now we have progress, and that's not to be celebrated. 

 

As global virus cases surge looking likely to hit 80 million before the Christmas holidays the UK emerged at the weekend as the country currently suffering most at this time. As a new strain of the virus was detected, potentially 70% more transmittable and worryingly more infectious to children there was a swift race to lock borders and air passages to the UK. This brought 30-40 travel bans to and from the UK. The WHO were quick to underline what the UK was experiencing was the natural path of any virus but as case numbers rose sharply, the UK Government was swift to bring in an additional 4th Tier with now 43% of the population no being under full lockdown laws backtracking on the plans to give the nation freedom to see family over Xmas.  

 

Whilst the UK became the poster child for all things bad, they were not alone in sharp increases in numbers with most of Europe and the US seeing significant jumps and worrying trajectories as the race to get the vaccine distributed to impactful levels.  As an example, it's estimated that in the UK they will need to vaccinate around 20m people for it to start showing a meaningful improvement on infection numbers, and 2 weeks into the vaccination programme earlier this week just 0.5 million had been vaccinated. Naturally across the globe it will be a Christmas holiday season like no other, but thanks to the vaccines, the markets still focus on the promise of a better time and whilst battered and beaten from the year that’s gone by the hope of nations is supported by optimistic markets, with potential value in Europe and the UK when the worst of this passes.

 

In the US there was finally agreement sought between the Democrats and the Republican parties in a stimulus plan with a view to getting rolled out as current aid packages expire on the 26th of December. The news immediately brought support but not fresh impetus to the stock markets. However, in what appears to be outgoing Presidents Trump’s last swing at control or power he made a 4-minute video condemning the deal as too small only offering cheques of $600 when he felt they should have been at the $2000 level.  In what appears to be an attempt to gain populism as he leaves the move could well have the opposite effect.  Whilst those in need will welcome the additional funds secured out to September the potential Presidential “veto” will delay the process of getting funds to the people at a time they gravely need it creating mortgage and payment default and delinquencies. 

 

From a political standpoint this also places his own party in an embarrassing position. The votes in both the House and the Senate were won on heavy majorities greater than the 60% required to overthrow a Presidential veto. Additionally, with Republican leaders voting on and pushing for the $600 cheques in the key state Georgia head of the election runoffs on the 5th of January, the Democrats have quickly seized the opportunity to use this against them, perhaps increasing their election fortunes and the chance we see a blue sweep in the Senate after the vote.  So, we enter this illiquid week of market trading with remaining contention and the possibility of deadlines being missed. For now stocks are holding up, such has been the influx of fresh investment over the last few weeks since the vaccine was announced, but raising domestic turmoil on the stimulus plan and Trump continually prodding at Iran and Russia could well bring a tipping point into the year end, especially if Covid-19 keep raising at such alarming rates.

 

Have a fantastic holiday season!

 

The Week Ahead:

 

Friday - Christmas Holidays in most countries just Japanese Housing Starts data

 

Monday – Bank holidays across the globe with just Industrial Production data from Japan

 

Tuesday – S&P Composite HPI

 

Wednesday - UK Nationwide HPI comes first before Spanish flash CPI. In the US Session we get US Goods Trade Balance, Prelim Wholesale Inventories, Chicago PMI and Pending Home Sales numbers

 

Thursday – Bank holiday in Japan. Manufacturing and Non-Manufacturing PMI’s from China. In the US session we just get the Weekly Unemployment numbers.

 

Friday – Global Bank Holidays

 

 


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