Brexit trade talsk resumed on Saturday in London and there are now hopes that a deal may be reached by Friday this week. The Sunday Times reports that European Commission President Ursula von der Leyen is applying pressure on Michel Barnier to try and reach an agreement. She has also sent one of her senior officials, Stephanie Riso to assist him.
Boris Johnson is expected to speak with Ursula von der Leyen in the next 24 hours and any developments could result in market volatility for the pound. Fisheries remains the most difficult problem area. The Financial Times reported this weekend that the UK has dismissed an offer on rights to fishing waters. Michel Barnier had told the UK that the EU could accept a 15-18% cut in its share of rights in UK waters but this is the limit for how far the EU would be prepared to compromise. This is at odds with the UK’s chief negotiator David Frost, who is trying to achieve 80% of the £650 million worth of fishing rights. Boris Johnson may also call French President Emanuel Macron to try and break the deadlock with any statement release potentially impacting GBP.
The Sunday Times reports that one senior UK official said "Von der Leyen has been quite helpful. She is keen to unblock things. Her team has been more involved of late which is helpful. On the level playing field and state aid we aren't there yet but we can see how we get there. The problem is fish."
Whilst there is some renewed optimism for a deal, the Sunday Times also reports that a no deal departure was still "underpriced".
The FT reports that some commentators are putting emphasis on the next EU summit for more volatility. Silvia Dall’ Angelo, senior economist at Federated Hermes said “Investors would probably get a lot more nervous if the EU council meeting on December 10 and 11 passed without any sign of agreement. In a scenario of a no trade deal, the pound could reach parity against the euro, at least initially.”
Meanwhile expect more financial and currency volatility on Covid-19 and vaccine related developments with looser restrictions expected to be announced after a backlash from Conservative MP's surrounding the latest tiers.
With the UK preparing to give vaccinations to millions of people it is not yet clear if the government will opt for the cheaper UK version or import a much more expensive one - Moderna. The Oxford /AstraZeneca vaccine has produced confusing results over its effectiveness.
Data is light today as we end the month with UK mortgage approvals. UK Purchasing Managers Index data is released tomorrow for the manufacturing sector. Manufacturing has seen a resurgence of late having received a boost from the global economic recovery. UK manufacturers have also been increasing capacity and exports before the transition period comes to an end.
The Eurozone continues to struggle as new lockdowns have put the EU economy on course for another contraction. European Central Bank (ECB) President Christine Lagarde indicated after the last meeting that she will “recalibrate” at the next meeting 10th December. It is widely expected the ECB will add more monetary support for the economy which may influence the euro. Lagarde has warned against excessive optimism over the short-term impact of a vaccine. She said, “While the latest news on a vaccine looks encouraging, we could still face recurring cycles of accelerating viral spread and tightening restrictions until widespread immunity is achieved. The recovery may not be linear, but rather unsteady, stop-start and contingent on the pace of vaccine roll-out.”
EU PMI data for the manufacturing sector is released tomorrow with services on Thursday. EU Unemployment numbers and retail sales are released on Thursday.
As Irwin Stelzer writes in the Sunday Times, Christmas came to America early this year after Donald Trump finally allowed the transition of power to proceed.
The markets are interested in what the former Fed Chair Janet Yellen can bring to the table in her new role as treasury secretary under the new administration. Economists have started to talk about the possibility of a K-Shaped recovery in the US where wealthier citizens bounce back on the upward part of the k, whilst the less well-off slide further down the lower part. Any major policy changes in the New Year will likely have a huge impact on the dollar. Friday sees US non-farm payrolls data which could make for an interesting start to December.
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