Please see below update received from Brooks Macdonald this afternoon, which comments on the markets’ reaction to political developments in the US as well as ongoing Brexit negotiations in the UK.
What has happened
After starting somewhat moodily, markets gradually recovered ultimately ending in positive territory with the US close. Whilst US Fiscal Stimulus pre-Christmas is still up for debate, constructive comments from the Republican Senate leadership helped support risk appetite.
US Stimulus
Senate Majority Leader McConnell urged both sides to set aside their top priority demands which had generated sticking points earlier in the year. Both parties are acknowledging that this is stage one of the negotiations with another package inevitable when the new administration enters the White House. It’s within that context that the narrative has shifted to ‘pass those things that we can agree on’ in the words of Mnuchin. Treasury Secretary Mnuchin presented a $918bn bill to House Speaker Pelosi so there is a suggestion that we are getting closer to a headline figure on the package. Below the surface there are quite a few differences however, including unemployment insurance where the bipartisan bill backed by Pelosi allocates $180bn with Mnuchin’s White House bill containing just $40bn. Markets have taken the language of compromise, backed by actions, positively however and this has been enough to shrug off the European risk with Brexit.
Brexit
The contentious provisions in the Internal Market Bill were withdrawn by the UK Government yesterday after an agreement in principle was reached around the Northern Ireland arrangements. This draft agreement is yet to be published but these talks, led on the UK side by Michael Gove, have been running in tandem to the main trade talks. This has removed a key point of contention between the EU and UK with the former suggesting that the provisions meant the UK could not be trusted. This improved backdrop is the context for UK PM Johnson to meet EC President von der Leyen over dinner tonight to discuss the Brexit impasse.
What does Brooks Macdonald think
Both sides have played down the odds of a deal and have sounded cautious without entirely snuffing out hope. Is this theatrics or managing expectations ahead of a dinner that shows ‘both sides tried’ – who knows. That said, yesterday was a positive day for Brexit developments as the dropping of the Internal Market Bill provisions (and promise not to include similar measures in the Taxation Bill) does suggest a continued softening of the UK’s position ahead of the crunch dinner tonight.
We will continue to monitor the markets’ performance as we edge closer to the end of the Brexit transition period on the 31st December. Please therefore, check in again with us soon.
Stay safe.
Chloe
09/12/2020