Good Morning,

 

It all seems to have gone pretty wrong pretty quickly for the UK, with 16 million people in tier four lockdown over Christmas and 19 countries implementing travel bans.  Add to that Dover being at a standstill, because France has closed its border with the UK for 48 hours and understandably markets are a little bit risk sensitive.

Up until about lunchtime on Friday, the Pound had been performing reasonably well and markets had been thinking that this could be a good weekend, with every chance of a deal being signed. Fast forward to Monday and there’s still no sign of a deal, as significant differences still remain around fish, which has left the Pound trading sharply lower compared to Friday’s close and seemingly only heading in one direction. What we’re also seeing with the port closure is a bit of a trial run of a no deal Brexit, though it’s not because lorries can’t come into the country, just reluctance by drivers to want to make the crossing for fear that they’ll be spending Christmas on the M20, unable to leave!

Brexit talks are continuing though, which might provide some comfort that it’s not all bad. Neither side is overly optimistic though and the line from the UK over the weekend was still very much that the EU needs to shift its stance and that the UK has nothing left to give. Irish foreign secretary Simon Coveney has said that he doesn’t see a deal being agreed easily and that “it won’t surprise me if (fish) collapsed the whole negotiations. It certainly has the capacity to do it”. Michael Gove has said that we could enter a series of “mini deals” with the EU if we can’t agree on the grand bargain. These would involve on side making “unilateral decisions that will make life easier for one or the other side and it may be that those unilateral decisions are reciprocated”.

Nicola Sturgeon has said “it is now imperative that the PM seeks and agreement to extend the Brexit transition period.  The new covid strain – & the various implications of it – means that we face a profoundly serious situation, & it demands our 100% attention. It would be unconscionable to compound it with Brexit.”  Could this be Boris’ next U-turn?  We’d hope it was this over a no-deal, but given the late in the day approach that we’re used to, agreeing to this ahead of Christmas would seem unlikely.

At least there’s some good news for the market to sink its teeth into, with the agreement on a US stimulus package overnight. The $900bn agreement still needs to be passed through both the Senate and the House of Representatives before being signed by Trump, but is likely to pass all those steps.  The bill has been argued about since June and in that time millions of Americans have seen support during the pandemic dry up.  The $900bn bill is also tied to a $1.4 trillion package that keeps the government funded through to September of next year.  The news of is passing will come as a relief, but Joe Biden is likely to try and pass another package as soon as he’s sworn in.

The ’problem’ the markets will have with the good news though is that it was largely expected and as such people have already bought the rumour.  This could well mean that it’s not enough to take the edge off the broader concern of the covid mutation that could very quickly start hitting other parts of the world.  With plenty of market participants now off for Christmas, thinner volumes and a mooted risk appetite could see this week being all about banking what profit is there, rather than holding out for more.

Tesla joins the S&P 500 today, which is great for them: The S&P is the most passively traded equity index in the world, which means that hundreds of millions of people will effectively hold Tesla stock through pensions, ISA’s and insurance products without even knowing that they do.  Tesla stock being part of such a massive, passive pool of funds should hopefully settle their share price volatility down.  The flip side is that the S&P might have got a little more volatile as a result, but we’ll have to see how that plays out.

The good news is that today is the shortest / darkest day of the year and as such it should all start to get a bit brighter from here on out – albeit slowly and often imperceptibly, so you just have to trust that it will.

That’s all for now.

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