Before the Bell: Deadlines come, and deadlines go
Uncertainty over the prospect of a stimulus deal or economic aid package saw US markets finish last week on the back foot, as US politicians once again put party politics ahead of the people they are supposed to represent.
“With a deadline fast approaching by year end US lawmakers are once again split down the middle as two competing stimulus proposals do the rounds, one from a bipartisan group of lawmakers for $908bn and another favoured by US Treasury Secretary Steve Mnuchin of $916n,” explains Michael Hewson, chief market analyst at CMC Markets UK, this morning.
West Virginia Senator Joe Manchin who represents the bipartisan group of senators has said that he intends to put forward the $908bn stimulus bill later today. “However there is no guarantee that it will get passed, which means the procrastination could well go on for a few more days yet, as another deadline slips by. Nonetheless it still seems more likely than not we will probably see some form of deal by year end,” Hewson told City PM earlier today.
On the plus side the Pfizer vaccine begins its roll out in the US this week after being approved at the weekend, and this along with hopes of a new stimulus bill being signed off is helping Asia markets start the week modestly positive, and this looks to translate into a modestly positive open here in Europe this morning.
Brexit talks continue
On the subject of deadlines, the latest UK/EU trade talk deadline came and went at the weekend, as politicians on both sides agreed to keep talking.
“In reality the only deadline that matters now is 31 December, as the procrastination continues between EU and UK negotiators, with rules around the so-called level playing field and governance, still at the heart of the disagreements between the two sides,” Hewson said.
“It defies belief that the EU can agree a deal with the likes of Hungary and Poland over threats to the rule of law, and yet are unable to come to some form of agreement with the UK, an ally of longstanding, on a trade agreement,” he added.
Hewson stressed it is in both parties’ interest to come to a deal yet here we are in a situation where the EU will compromise on the rule of law, but won’t compromise on the rules around a trade agreement. “That’s not to say the UK has handled the talks well, they haven’t, the last four years have been utterly shambolic,” he added.
That doesn’t change the fact that there is a need for some form of deal that is able to smooth out any immediate disruption to trade relations between the EU and UK, as the potential for further economic dislocation caused by the coronavirus stepped up a notch at the weekend.
Germany back into lockdown
A further sharp rise in coronavirus cases prompted German Chancellor Angela Merkel to put Germany into an even harder lockdown until 10 January, as infections there continued to rise unchecked, despite the closure of bars, restaurants and pubs since November. “The potential for a huge economic hit for the Irish economy is also a clear and present danger in the event of a no deal outcome,” Hewson said.
“Whether or not we get a deal now is almost incidental to the fact that there will be a certain level of disruption come the 1st January whatever outcome we get. We are already seeing elements of turmoil already largely as a result of Covid-19 all over the world, as well as some pre-Brexit and pre-Christmas stockpiling,” he said.
There’s the further added factor that businesses don’t have the luxury of waiting to see which way the talks go; a certain amount of preparation has probably already been done, in terms of putting computer systems in place to handle any additional paperwork.
“This uncertainty over Brexit appears to have been reflected in a net outflow of funds exposed to UK equities in the last couple of months, however that still hasn’t stopped the FTSE100 from hitting its highest levels since the beginning of March,” Hewson concluded.