Please see below investment bulletin from Brooks Macdonald received today – 18/12/2020.
What has happened
The swinging of the risk pendulum continues with positivity around Brexit, Stimulus and Vaccinations driving markets to fresh all-time/post-pandemic highs yesterday. The feeling of seasonal goodwill faded somewhat as we came into today, however.
Brexit…
This week has been characterised by reports that both the EU and UK legislative bodies were being prepared for an extraordinary series of sessions to ratify a Brexit deal. Overnight however UK PM Johnson and EC President von der Leyen both had a call which concluded that ‘differences remain’. Sterling, after being on a strong run but still within its tight 1.09-1.11 range versus the Euro, is feeling downbeat as investors get increasingly tired of trying to interpret policy from bluster. A new deadline is appearing from the EU to force negotiations to a conclusion with the European Parliament’s Conference of Presidents saying that they would organise an extraordinary session of Parliament as long as an agreement was reached on Sunday. The stakes are high enough on both sides that no one is going to walk away from a compromise reached on Monday morning, but time is very tight and not much Brexit no deal planning can take place within industry given Christmas’s immediacy.
US Stimulus Talks
It wasn’t all gloom and doom yesterday with stimulus talks progressing albeit at a slow pace. Senate Majority Leader McConnell and the White House said that a deal was close as a government shutdown at midnight tonight looms. There appears to be little appetite for last minute brinkmanship on this given the change of guard at the White House but also the precarious economic situation caused by COVID. The current bill is $900bn which contains a large number of the previously discussed measures but predictably excludes state and local aid. One fly in the ointment could be Pat Toomey, a Republican senator from Pennsylvania, who has sought to insert a provision in the stimulus legislation that would prevent the Fed from automatically reviving some several emergency credit facilities that are due to expire at the end of the year. Without this provision the presumed Treasury Secretary Yellen could have restarted the facilities without Congressional approval. One to watch
What does Brooks Macdonald think
It is rather disappointing that the two pieces of unfinished business remain unfinished as the Daily Investment Bulletin packs up for Christmas but it is in many ways apt given how Brexit and post-May US Stimulus have taken up many column inches with little legislation to show for it. Next year will be dominated by the interplay of vaccines reopening economies and short term economic restrictions and hopefully one of the above will be sorted for our return at the start of January…
Source: Bloomberg as at 18/12/20
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Charlotte Ennis
18/12/2020