Vaccine euphoria has delivered strong gains to stock markets over the last month but they appear to be running on fumes as the run-up to the holidays begins.
So much positivity priced into these markets but there’s still plenty that could deliver the famed Santa rally we all crave. As we saw in the UK yesterday, regulatory approval paving the way for distribution of the vaccines gave the FTSE a leg higher as another potential hurdle was overcome. The same should soon follow for other vaccines in the UK and around the world over the next couple of weeks.
With lawmakers on Capitol Hill back in deal-making mode, intense negotiations will now get underway in the hope that a relief package can finally be passed and provide much-needed support to businesses and households across the country. While any deal will likely be much smaller than Democrats would like, the important thing is to get something agreed upon before the end of the year.
With Congress also having to agree a funding bill to avert a partial government shutdown by 11 December, the best chance of a deal may be alongside one another. It won’t be perfect but it will see the country through to the new administration, at which point more talks can commence, if needed.
The fact that the Democrats are willing to use a bipartisan proposal, amounting to USD908 billion, as a starting position is a significant compromise that could be a promising launch point for negotiations. This is a massive concession from the USD2.4 trillion package it had been targeting and may reflect its belief that it will stand more chance of passing something more substantial after January 20th.
The leader of the Senate, Mitch McConnell, has been less open to the bipartisan proposal but is keen to tie any stimulus to the funding bill. While some are enthused by the desire on both sides to get something done before the holidays, I’m not quite there. The differences remain significant and McConnell may feel emboldened after the election, with the run-off in two Georgia seats still to be decided, which will determine whether Republicans hold the Senate.
PMIs highlight lockdown damage to services industry
Services and composite PMIs from across Europe this morning leave much to be desired, with lockdowns across the region once again decimating businesses at a critical time of year. As well, any reopenings aren’t going to dramatically improve conditions for many of these, with the restrictions that will remain in place on them likely carrying on into the new year.
It’s all about just staying alive for many firms in the hospitality, retail and tourism industries, and the latest lockdowns make life so much harder. And with the services industry being a driving force of most economies, it doesn’t bode well for growth in the fourth quarter, regardless of the performance of their manufacturing industries.
Brexit nerves creeping in
Brexit talks are ongoing and yesterday we saw the first sign of nerves creeping in. Volatility in the pound is likely to pick up from here, with the currency falling more than 1% against the dollar after Barnier’s comments. We’re seeing more and more public commentary coming from the talks which may reflect increasing frustrations or final attempts to draw concessions against the threat of no deal.
While the confidence in the markets continues to surprise me, I do remain confident that talks won’t collapse this late in the day given the issues that remain. It would be a huge failure on all sides to choose no deal over compromise at this point and I am optimistic that common sense will prevail. They’re just leaving final compromises until a minute to midnight. It’s just not clear to the rest of us when midnight is, given the need for any deal to be ratified.
For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/