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So long and thanks for all the fish

A bad deal is better than no deal

Two years ago, Prime Minister Theresa May insisted that “no deal is better than a bad deal”. Two weeks ago, the pro-Brexit media were still sticking to that. Investors, however, thought otherwise, and were relieved on Christmas Eve when a bare-bones free trade agreement was at last agreed.

That relief was demonstrated by the pound’s robust performance last week, when it strengthened by an average of 1.2%. Investors’ worst fears of logistical turmoil, broken supply lines and gunboat action in The Channel had been averted. Britain’s economy could prosper even more mightily than it would have done had there been no deal.

The Trade and Cooperation Agreement (TCA), which runs to 1,256 pages, was published on Christmas Day, so only the keenest of analysts have as yet ploughed their way through it. It is clear, however, that trade between Britain and Europe will be more bureaucratic and more expensive to administrate. That, together with the absence of any agreement on financial services, has left investors wishing for more. Their relief that no-deal has been avoided shows signs of turning to regret at what has been lost, and sterling is down by an average of 0.6% from Christmas Eve.


The $2,000 question

Over in Washington, the politicians have been focussed on a long-overdue fiscal stimulus package and the President’s abortive attempt to punish social media firms for what he perceives as their bias against him. The question remains open as to whether Americans will receive a $600 cheque or one for $2,000.

The $900 million stimulus bill which, with 5,593 pages, dwarfs the EU-UK TCA, was at last signed into law on Sunday evening. Among many other things it allows for direct payments of $600 to adults with an income of less than $75k a year. The president thinks the payment ought to be increased to $2k and the House of Representatives does not disagree. It voted yesterday to approve that increase and the matter is now in the hands of the Senate.

There has been push-back from Congress regarding a $740 billion defence bill. It was vetoed on Wednesday by the President, who wanted to include provisions that hold social media platforms liable for what their users say. The House overrode the veto by a majority of four to one and the Senate will consider the matter today. The US dollar is on average unchanged from Thursday morning and down by three quarters of a cent against sterling.


Year-end housekeeping

In this three-day week, investors will be reluctant to get too involved with currencies, lest they mess up their positions. The vaccines are rolling out, Brexit is done and Congress is keeping the President busy. None of the week’s ecostats have any obvious potential to move the market.

Yesterday’s data showed a monthly decline of 0.8% in Spanish retail sales in November while in Norway sales were up by 2.8% for the same month. The Dallas Fed’s Texas manufacturing activity index fell from 12 to 9.7, a four-month low. The only ecostat today is US house prices.

It is hard to imagine what might get sterling going. Although the Brexit deal does not yet have the approval of parliaments in Britain or Europe, they are not likely to reject it at this stage. 

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