Before the Bell: Fishing for a deal
While markets in Europe underwent a fairly mixed week, the FTSE100 was notable in undergoing a significantly strong move higher to its best levels since March, driven up by a combination of optimism over the rollout of a vaccine, which begins this week, and the prospect of a possible UK/EU trade deal.
US markets also saw more record highs set, despite “a rather disappointing” US jobs report on Friday, as CMC Markets UK chief market analyst Michael Hewson calls it, which on the face of it prompted many investors to surmise that it would make US politicians more amenable to agree a new $908bn stimulus deal, by the end of this week.
There have been worrying signs, since the US election that the US economy is losing traction, at the same time as virus infections rates, hospitalisations and deaths continue to rise very quickly.
“With 12m Americans set to lose their Cares Act benefits at the end of this month, and the US Labour force Participation rate dropping back to 61.5%, the concern about a financial cliff-edge for US household finances has been rising, on both sides of the political aisle,” Hewson told Morning Wire this morning.
“This appears to have altered the political imperative about the prospects of an imminent stimulus deal, and as a consequence the calculation appears to be that we could see something agreed by the end of the week,” he added.
Asian markets this morning
Asia markets seem to be making a similar calculation initially, though sentiment has soured a little on reports that the US is looking to sanction key Chinese officials over recent events in Hong Kong, in which some legislators were disqualified on the grounds of not being sufficiently loyal to the administration.
On the plus side the latest China trade numbers for November, showed that imports rose by 4.5%, slightly less than expected but still the third monthly increase in a row, while exports rose by 21%, a big increase from the 11.4% seen in October, with sales of PPE and other medical related equipment, a decent proportion of that surge. “The rise in exports was the biggest rise in almost three years and was also driven by some seasonal demand for the likes of electrical and Christmas goods,” Hewson noted.
All eyes on Brexit talks
European markets look set for a similarly uncertain start as the latest EU/UK trade talks move into their final phase, in what is set to be a make-or-break week, with a possible ratification summit, later this week on 10 December.
“There has undoubtedly been a ratcheting up of the stakes in the last few days, with France threatening to use its veto, in perhaps a calculated attempt to try and exert its influence in the final terms, while the UK has also said it would not shift on its red lines of fishing, level playing field and oversight and governance,” Hewson said.
“With talks resuming over the weekend, we’ve been treated with various outbursts of optimism from the likes of Ireland’s foreign minister Simon Coveney who was saying that a deal was 97% to 98% done to the Irish Prime Minister saying that a deal was no more than 50-50,” he noted.
Reports of a compromise over fishing have seen the focus now move to the level playing field as it has been called, which would dictate the level of divergence allowed between the UK and EU in any future trading relationship.
France has said it is not opposed to some level of divergence, but that there needs to be a mechanism of sanctions in place if the divergence is considered excessive.
“In essence if the issue of fish does fall away, and on that it depends on how you interpret the smoke signals coming out of the two camps, it then comes down to the levels of divergence and the governance and enforcement mechanisms, that both sides find acceptable,” Hewson concluded.