European stock markets ended the day a little higher on Tuesday, the exception being the FTSE 100, which buckled under the pressure of a resurgent pound.
It seems not everyone shares Boris Johnson’s apparent pessimism around a Brexit trade deal. Of course, everyone else isn’t at the critical stage of a negotiation, so it’s far easier to be openly optimistic. And let’s face it, while the nerves have crept in over the last couple of weeks, the markets have been remarkably steady. Traders have never lost confidence.
Reports this afternoon suggest progress is being made on the level playing field, with fishing remaining an issue. But let’s face it, while talks could theoretically fail over the level playing field issue, there’s very little chance of it happening as a result of fishing. Today’s progress looks significant on the face of it. Perhaps a deal this week is possible.
Sterling took the news very well and is up almost 1% on the day, with its sights set on 1.35 once again. It’s been another volatile session, but the optimism over the latest development is clear for all to see. The question now is how much further can it go if a deal is wrapped up this week? While I’m sure there’ll be a pop higher, I feel it’s so priced in at this stage that it may not be long until profit-taking kicks in.
Let’s hope lawmakers in the U.S. are making similar progress in their negotiations, with time fast running out for them to strike a deal on COVID relief. It does feel like we’re getting closer, albeit to a leaner package that addresses the near-term threats facing the country. But that’s better than the alternative of moving into 2021 without any support measures in place.
Should we get a Brexit and U.S. stimulus double whammy this week, stock markets could end the year on a high, safe in the knowledge that various bad scenarios have been averted, while central banks remain fully behind the effort to support the global economy through the recovery. A great combination for the markets.
A number of central banks have topped up their stimulus efforts over the last couple of months and the Fed is widely expected to join them tomorrow. Longer-term yields have been creeping higher in recent months and while they’re still extremely low, the central bank will surely want to give them a nudge in the right direction.
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