Markets in holiday mode

It’s not just the US that’s in holiday mode, it seems, with financial markets a little flat on Thursday.

Thanksgiving has naturally left a massive void in the markets and conditions aren’t likely to dramatically improve until next week, with many surely making the most of it and enjoying an extended bank holiday weekend. There isn’t exactly an abundance of event risk elsewhere to drown out the US celebrations so perhaps we should just enjoy the peace ahead of a potentially eventful end to a tumultuous 2020.

European stock markets are making small losses on the day. Some profit-taking may be kicking in after a remarkable run this month, as vaccine fever gripped the markets and the great rotation saw previously unpopular companies come back into favour.

In reality, trying to read too much into trading today and tomorrow may just be a bit pointless, unless we see some much bigger moves. Even then, in light trade moves can be exaggerated so it’s not worth getting too carried away unless something fundamentally changes.

Even the economic calendar today has nothing to offer into the end of the week with just a small selection of low impact data. The only noteworthy release this morning was the German GfK Consumer Climate, which fell to -6.7, a little more than expected but far from the low of -22.7 in the first lockdown.

There was nothing in today’s ECB accounts to suggest expectations of more easing in two weeks is wide of the mark. In fact, when you consider the deteriorating economic outlook evident in the surveys, national lockdowns and references to inflation likely being in negative territory for longer than envisaged in the September projections, it’s surely just a matter of how much easing is needed, not whether it is.

People in the UK have today learned just how much freedom they’re going to enjoy in the run-up to Christmas, as per the government’s update tiering system. For most of the country, it seems, the answer is simply not much, regardless of whether you’re in tier two or three, which is where the majority of us find ourselves.

Regardless of the various schemes in place to support businesses and employment, this is going to take a significant toll and explains the government’s downbeat projections for growth and employment in 2021.

This makes the Brexit negotiations all the more important, as noted by the Governor of the Bank of England who recently warned that a no-deal Brexit would be worse for the economy longer term than the pandemic. No news is surely good news, given the four years of public berating that preceded the intense negotiations this month. But time is fast running out, the eleventh hour is almost upon us. It’s time for compromise.

While sterling is a little softer, it continues to trade around the highs of the last two and a half years, highlighting the confidence in the markets that a deal will be reached, despite the end of the transition creeping ever closer. That could make for a savage sell-off if this confidence isn’t rewarded.

For a look at all of today’s economic events, check out our economic calendar.

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Craig Erlam

Craig Erlam

Former 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.