Please see below for detailed economic and market news from Brooks McDonald’s in-house research team, received by us the evening of 16/11/2020:
Last week was dominated by a cyclical rotation caused by positive news around the Pfizer vaccine
Friday capped off a partial unwind of the sizeable rotation into cyclical stocks as last week’s newsflow was dominated by the Pfizer vaccine story. The next few weeks may see further efficacy data from other challengers such as Moderna and Oxford/AstraZeneca. Meanwhile, another Brexit deadline looms this week.
With changes at Number 10, markets are attempting to read the implications for policy
With a number of senior advisers leaving Downing Street at the end of last week, including Dominic Cummings, markets were scrambling to work out what this means for policy as well as Brexit. There are many theories abound but given the timing of Brexit talks this week, the exit of prominent Vote Leave figures seems less likely to be a coincidence. Prime Minister Johnson signalled that he was keen to shift to a levelling up policy agenda during meetings this week. This has taken a slight backseat as he was forced to self-isolate after being in contact with an MP who tested positive for coronavirus.
A key week for Brexit negotiations as talks continue ahead of Thursday’s EU Leaders conference
The government has been anxious to stress that these changes are not the harbinger of a softening of the UK’s Brexit stance. The UK’s Chief Negotiator David Frost said over the weekend that the UK’s negotiating position has been consistent, adding ‘I will not be changing it’1 . This week is important given the meeting of EU leaders on Thursday. While it is possible that talks drag on into early December, there is a growing sense of urgency on both sides that clarity for business needs to be achieved. The EU leaders meeting will likely disclose the current state of play within the negotiations and this could prove to be a pivotal week for a topic that seems to have had too many key weeks.
Sterling has remained largely rangebound coming into the negotiations this week. This is because the market knows that the current level is wrong. It is either too high (in the event of a no deal) or too low (in the case of a trade deal) and there are few solid signs of a shift one way or another. It is important to note that the blueprint for a trade deal is a ‘Canada style’ Free Trade Agreement rather than something akin to the Single Market. For this reason, even if we do see a deal over the coming weeks and a subsequent jump in Sterling, some economic risk is still likely to weigh on currency for the medium term.
Regular updates like these are a useful method of frequently updating your holistic view of the markets, especially given the way the market is rapidly changing by the day with recent news of multiple Coronavirus Vaccines.
Please continue to read these blogs to keep you informed.
Stay safe and well
Paul Green
17/11/2020
