Before the Bell: Boris heads to Brussels
After a negative start to the week on Monday, markets in Europe trod water yesterday, awaiting the next developments as we head towards the final denouement of the saga of the EU/UK trade talks, while the first day of the vaccine rollout in the UK also drew a lot of attention.
“Ordinarily an event such as this would be the main focus, along with the news that the AstraZeneca, Oxford vaccine was confirmed as being between 62% and 90% effective, however these are not ordinary times,” Michael Hewson, chief market analyst at CMC Markets UK, tells Morning Wire this morning.
That said, the news did help push the S&P500 above 3,700 to a new record high, along with the Nasdaq, with hopes of a new $916bn economic aid package from US lawmakers also helping on the margins, against a backdrop of rising US coronavirus cases.
“Asia markets were able to put aside any doubts about any political failures and trade broadly higher with markets here in Europe set to also edge higher on the open,” Hewson noted.
Brexit talks
With markets slowly becoming inured to every single headline that is hitting the tape, it’s becoming even more difficult to gauge the mood coming out of Brussels.
“With optimism and pessimism being displayed in equal measure, it is apparent that the eventual outcome could well go either way, however the stars do appear to be aligning for some form of deal by the end of the month, despite reports that suggest a no deal is becoming much more likely than most would like to admit,” Hewson said.
First of all, the agreement over the Northern Ireland protocol does come across as a very positive sign, he continued, despite the “hawkishness being displayed” in reported comments from EU chief negotiator Michel Barnier, that the chances of a deal were now “very slim”.
“If that is indeed the case, why go to the trouble of ironing out a key UK touch point with respect to the Irish border, which in turn has seen the UK pull the contentious items in its Internal Market Bill,” Hewson added.
No deal scenario
A no deal outcome would attract the attention of the US, particularly in the context of the Good Friday agreement, and it wouldn’t just be the UK that would get the blame, Hewson remarked.
This evening Prime Minister Boris Johnson is due to have dinner with EU Commission President Ursula Von Der Leyen, to try and put the talks back on track, after they suddenly came off the rails at the end of last week.
“The hope is that the two of them can push back against the more hawkish voices amongst some in the EU who mistakenly think that somehow a no deal outcome is even an option to be contemplated,” he noted.
Even without the coronavirus pandemic a “no deal” outcome would have been a risky strategy on the part of EU leaders, particularly given the current fiscal impasse on the aid package already under consideration, Hewson said. “The EU can ill afford another economic dislocation caused by a no deal Brexit, on top of the economic devastation being wrought by Covid-19, despite all their bluster.”
‘Less pig headedness and more pragmatism’
Perhaps the calculation is that the UK will back down and fold, he noted, adding, however, that if the PM were to do that there is no guarantee he would be able to sell the sort of compromise that would be acceptable to the EU to the more recalcitrant parts of his party. If a deal is to be struck then it is more than likely that no one will be happy.
“What is required in the next few hours is less pig headedness and more pragmatism on the part of all parties. There will be no winners from a no deal outcome, whatever either side might tell you. If anything a no deal would be a kind of mutually assured destruction,” Hewson concluded.