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Fight club

Fishing for any positivity

On Monday it was once again the UK’s Covid and Brexit fights that grabbed the attention of media and markets. A growing list of countries moved to block travel from the UK, and France placed a 48-hour block on all accompanied UK freight coming across the Channel. The port of Dover was a chaos of lorries and Sainsbury’s warned of food ‘gaps’ in perishable goods, as the panic of another long lockdown for the UK sent shockwaves through markets.

The FTSE ended the session 112 points lower (1.73%), having earlier been down nearly twice as much. Similarly, the pound was down 1.5% against the dollar by 10:30 GMT (back in the 1.31s) and had conceded 1% to the yen and Swiss franc. Risk was most definitely off. But then a ray of light. Evening rumours circulated that the UK is now willing to compromise on fisheries; lowering its demand of maintaining 60% of international fishing waters in the Channel down to 35%. Although unverified, traders appeared to jump on this, sending sterling back up against its peers. The earlier 1.0852 has been the worst ride since September 15th. The Dow Jones recovered from a 1% drop in morning trading, to seemingly also ride the Brexit breakthrough wave, back to roughly where it began the day.

 

Compromise required

A compromise is needed, but by no means reached. Earlier calls from politicians for the Prime Minister to seek an extension to the transition period were rejected. In later remarks Boris Johnson assured that the UK would thrive without a deal and that “WTO terms would be more than satisfactory”. Clear as mud, and a confusing time for both public and markets. There is still no trend in site for the pound.

Data-wise, CBI Retail Sales yesterday showed a significant recovering in December, boosted by early Christmas and online purchases. The figure is close-to-flat for the year. This morning the UK’s final GDP was revised up to 16%, which still left the economy 8.6% smaller than it began the year. Public Sector Net Borrowing rose to £30.8bn in November; the 3rd highest recorded month ever.

 

Safe haven dollar

Congress stayed late to pass the $900bn Covid relief bill promised. Its approval ends months of political infighting and means support for households, small businesses, the unemployed and aviation industry. The greenback had a good Tuesday Asian session and European opening off the back of the news, and global flight from risk. The most notable gains of over half a percent vs. the Aussie and Kiwi dollars again a reminder that risk is off and, as has been the case since Friday, the US dollar is a still-cheap, safe place.  

The Canadian National House Price Index missed expectations and dropped for the 3rd straight month, but still grew by 0.6%. The loonie has lost a percent to the US dollar since yesterday.

Already out this morning, Australian Retail Sales showed a forecast-thumping 7% jump in November, driven by 21% growth in Victoria, as coronavirus restrictions eased in the state. In Europe, German GfK Consumer Climate dropped to -7.39. Hit by lockdown measures, it was the 9th straight month of negative responses and worst since June. Later, all eyes will be stateside, as the US release its final GPD, Existing Home Sales and Consumer Confidence figures.

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