Talks edging towards conclusion

Markets eye US stimulus, Brexit

Steady gains being seen once again on Wednesday, as we continue to see progress on a variety of downside risk factors going into year-end.

Lawmakers in Congress aren’t exactly on the same page, with regards to the kind of stimulus that’s needed beyond the end of the year, but one thing they’re clearly in agreement on is the essential need for an extension of relief. And one that’s tied to funding for government.

The 11 December deadline has just come a little soon, which is why lawmakers will today approve a one-week extension in order to give them some extra time to agree on relief measures. For the first time in a while, I’m actually optimistic on a deal before the end of the year now, albeit one that will likely require fresh talks in the new year. The important thing is that it averts the damaging cliff-edge scenario at the end of the year.

Let’s just hope that compromise becomes a common theme this month. OPEC+ led the way last week in agreeing on terms for gradually paring back emergency production cuts implemented earlier this year. This week we may see some significant movement in the Brexit negotiations as well, as Boris Johnson travels to Brussels for dinner with Ursula von der Leyen.

Negotiators have taken things as far as they can with their given mandates; political compromise was always going to be necessary. This was always going to come in the form of face to face talks between the two leaders, although I’m sure many hoped it wouldn’t be quite so late in the day.

The question is what compromises will be made, with the issues remaining being extremely political, even if fishing, for example, is very insignificant in the grand scheme of things. I remain confident that this evening’s dinner will break the impasse and allow negotiators to conclude talks in the coming days. If for no other reason than there’s just no time left and I don’t believe there’s any political will for no-deal, regardless of the noise we’re hearing on the sidelines once again.

Traders remain optimistic though, although volatility has certainly picked up this last week. The nerves are creeping in and that may ramp up dramatically if talks don’t go well this evening. I expect sterling could buckle if the two leaders fail to reconcile their differences this evening. That’s not to say they need to work out all the details, but if they leave that dinner claiming that the differences can’t be worked out, sterling could take a hammering.

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam