Research
Weekly Market Wrap 09-November to 13-November/2020
Marius Paun | London, UK | Senior dealer | Friday 13th November 2020
Light At The End Of The Tunnel As Pfizer Finds A Vaccine
We start the weekly wrap with some great news. The US pharma giant Pfizer, together with BioNTech, have announced their phase 3 vaccine trial was a success, preventing over 90% of coronavirus infections. Pfizer plans to seek emergency-use authorisation soon and seems confident they will be able to produce over 1.3 billion vaccines in 2021.
The markets reacted immediately with all major US indices rising intraday to fresh all-time record highs. They retraced from these highs later in the session on the realisation that the immediate concerns regarding infections still remain and a possible second nationwide lockdown is still in the cards. Nasdaq tumbled towards the close with Dow and S&P just about remaining in positive territory. Analysts were quick to suggest the rotation from tech, ‘stay at home’, growth shares into a value is now underway (airlines and hospitality had a great day with double digits gains).
Joe Biden, the Democrat candidate at the Presidential election was declared a winner by the media together with an increasing number of Republican politicians. However, Donal Trump is still disputing the results in the states he lost. Concerning for the markets, Senate Majority Leader Republican McConnell said he sees no need for the multi-trillion dollar coronavirus relief bill. President Trump also changed his tune. If, before the election, he wanted a larger deal than the Dems, now he is saying White House is stepping back from stimulus negotiations.
Meanwhile US Covid cases reached record highs amid a new wave of infections. After hitting 100,000 daily cases for the first time during last week, the US figures topped 160,000 on Thursday. As it stands the US now has 10.6 million confirmed cases since the start of the pandemic.
In China, former Finance Minister said the trade frictions with Washington ‘won’t necessarily ease, even with the new US President’. Beijing congratulated US President-elect Joe Biden with the Foreign Ministry adding that China will respect the choice of American people.
We also had the European Central Bank forum, attended by central bankers from the US and Europe. ECB President Christine Lagarde sees a little less uncertainty given the good news about the vaccine with monetary and fiscal policies ‘representing a bridge to the other side’. She seemed to be in favour of a digital currency as a complement to cash. Fed Chair Powell commented the US recovery is faster and stronger than expected but uneven and incomplete with Covid still posing a risk. In its Financial Stability report, the Fed reassured markets that banks are well-capitalized and, interestingly, included climate change for the first time in the potential risks going forward.
Bank of England Governor Bailey reiterated he does not have in mind a date for negative rates review outcome. He added that there is a lot of work to be done on the banking front deciding whether negative rates are a green light.
The EU envoy is in the UK trying to strike a last-minute Brexit agreement. The talks are expected to last until the end of the week but there is little confidence on either side of a breakthrough. The remaining stumbling issues are fishing, level playing field which includes state aid, taxes, worker rights and by extension some areas of financial services. Negotiations will probably continue next week in Brussels with the ‘real deadline’ now set for November 18th.
Gold prices tumbled sharply on Monday from $1965 to $1850 on growing concerns of a second wave of coronavirus infections. Investors were also enticed to rather go into stocks following the vaccine announcement. The US crude prices enjoyed a nice rally this week from a low of $37.4 to touch $43.26 on Wednesday on hopes the reopening of the economy could spur energy demand. OPEC was reported to be looking to extend the current output cuts for another 3-6 months which provided some extra support.
‘The Real Deadline’ For A Potential UK-EU Trade Deal
Marius Paun | London, UK | Senior dealer | Thursday, 12th November 2020
As Brexit negotiations appear to be going down to the wire, we thought it was about time to have a look at the euro against the pound sterling.
Where are we now? The EU envoy is currently in London trying to strike a last-minute agreement. Reuters reported ‘the talks are expected to last until the end of the week but there will be no updates this week with Brexit tentatively being on the agenda for the November 18th meeting between EU ambassadors’. So, unless we see a breakthrough, or conversely talks collapse yet again, there will be no news. Even politicians have had enough of the current stalemate?!!!
Previously both sides indicated that November 15th is the ‘last moment’ a trade deal can be reached if it is to be ratified by the respective parliaments by the end of the year. So, at the end of this week there is the so-called ‘soft deadline’, but in true UK-EU tradition that deadline is pushed further. The real deadline is now late next week, according to some insiders.
It’s fair to say that neither side is confident a deal could be reached this week. The remaining stumbling issues are fishing, a level playing field which includes state aid, taxes, worker rights and by extension some areas of financial services. Lately, the EU added the energy markets into the mix threatening the UK could lose access to it. Some analysts are speculating that was raising the stake to get some concessions on fisheries. In itself, fishing is rather a small issue so one could understand the view that it represents more of a political issue (a battle for giving up or not part of sovereignty even if it’s a small part just to prove a point) than an economic one.
Chances are talks will continue next week in Brussels. The best-case scenario for the markets is a simple free trade agreement, even if it’s going to take closer to December 1st. If history is of any guidance, EU leaders can always set up an extraordinary meeting pretty quickly if necessary. At the moment it seems investors are positioning towards a last-minute deal.
The Brexit negotiations might put extra pressure on the UK government to reach an agreement, preferably before President-elect Joe Biden is sworn into office in January. He made it clear that the US-UK relationship would be hurt in case of a no-deal Brexit. He values the Good Friday Agreement that ended the violence in Northern Ireland in 1960s and thinks like EU, a violation of the withdrawal agreement could damage the peace process in the region. Furthermore, Joe Biden was adamant the free trade negotiations between the US and the UK would also stop.
In an alternative scenario, but one seen as less likely, there will be no deal and the two sides will trade on the World Trade Organisation terms from next year. The next few weeks will be crucially important to gauge that scenario. The EU summit on December 10-11 is seen as the last option for the EU officials to agree or not. Beyond that, the last session for ratifying an agreement in the European Parliament is 17th December. Can anyone see the UK Prime Minister Boris Johnson delaying the decision into next year, Theresa May style, after being elected on exactly the opposite platform?
The pound sterling has strengthened against the euro lately on lingering hopes that finally something will be agreed as we approach year-end. EURGBP dropped from a high of 0.9290 touched on September 11th to a low of 0.8880 yesterday. It bounced right off that triple bottom trading around 0.8993 at the time of writing.
The chart shows a steady downtrend with the short-term moving averages below the long-term one and both pointing downwards. The price is now in between those MA after today’s strong rebound.
On the downside, the bears will be looking for a break back below the next support at 0.8944, followed by 0.8916. That could gather selling momentum for a retest of 0.8880. On the upside, there is plenty of resistance just above 0.900 marks to 0.920. However, the buyers will need to see a close above 0.9045 to think the rebound has legs. That would pretty much be the mid-level between 0.8860-0.9260, the range of price action of the past 6 months.