Investors and traders await approval of the Pandemic Relief Bill, while markets absorb the Brexit deal impact

Dec 28 • Market Commentaries • 792 Views • Comments Off on Investors and traders await approval of the Pandemic Relief Bill, while markets absorb the Brexit deal impact

Because Boxing day fell on a Saturday, many countries are classing Monday 28 as a bank holiday; therefore, several trading markets will be closed. The equity markets in the UK, Canada, New Zealand and Australia will be closed.

Markets in Germany, Italy and Japan will close on the last day of the year, while in the UK, France and Spain trading will end early on New Year’s Eve. These shortened equity trading hours on Monday and Friday will also affect FX trading volume and volatility during trading hours.

The Brexit deal finally agreed on Xmas Eve

On Xmas Eve, the UK and EU finally managed to agree on a Brexit deal. The deal’s reaction was muted in the EU but heralded with much pomp and fanfare in the UK’s right-wing mainstream media. The UK government claimed a significant breakthrough and climbdown by the EU, but the reality proved otherwise once analysts began to examine the agreement in detail.

The UK is out of the single market, out of the customs union and will no longer enjoy the frictionless movement of goods, services, people or finance. The only win for the UK is imported goods from the EU will not be subject to tariffs or quotas if the UK keeps up its standards.

Service industries account for 80%+ of the UK economy, and the EU offered no concessions. The finance industries will experience no equivalence leaving them wide open to cherry-picking by the EU financial centres Frankfurt, Geneva, Paris and Madrid.

Estimates by the UK Office of Budget Responsibility suggest that Brexit will leave the UK economy 4% smaller than its European member potential. In an era of post Covid recovery, this gap has just got far harder to close.

If there is one conclusion which sums up the UK Brexit folly it could be this; the UK lawmakers are the only country in living memory who’ve elected to erect barriers to make trade and movement more costly and more difficult. They’ve stopped the free movement of their population throughout the continent. It’s an own goal, and future generations will pay the cost.

Sterling rose moderately once the Brexit breakthrough got confirmed on December 24, GBP/USD closed the day out at 1.3534. EUR/GBP ended the day down -0.30% close to S1 and just below the 90.00 round number and handle at 0.899. Versus AUD and NZD sterling traded flat, GBP was up 0.10% versus the Swiss franc.

As markets opened on Sunday evening, the US dollar fell versus many of its peers, at 10:30 pm EUR/USD traded up 0.03%, GBP/USD traded up 0.10%, USD/JPY traded down -0.1%.

Pandemic Relief Bill stalls

For several weeks the Pandemic Relief Bill looked certain to be rushed through the US government’s apparatus to ensure that the poorest and most vulnerable people in US society would get financial assistance. The arguments over a $600 cheque for US adults are embarrassing compared to the trillions of dollars used to stimulate the financial markets since March.

The 600+ billionaires in the USA have seen their wealth grow by an approximate $1 trillion during the pandemic as US equity indices printed record highs. Meanwhile, 15 million adults have become added to the unemployment numbers. As of Sunday, December 27, the Bill had not passed.

Trump is objecting to the settlement and his opinion; that $600 per adult is pitiful and won’t even pay one month’s rent is correct. Estimates suggest that 17 million households are behind with their rent or mortgage owing close on $70 billion combined and over 600K individuals sleep rough each night in the US.

However, 14 million US adults will lose their unemployment assistance extension this month if the Bill isn’t signed, so the outgoing president’s sympathy might have looked more genuine if he wasn’t on the golf course during the holidays.

Even though this desperate situation exists, US equity markets continued to trade close to record highs during the December 24 session. The trickle-down has not trickled out of the main equity markets in the US. The NASDAQ 100 closed 0.46% up and the SPX 500 up 0.35%. USD fell versus GBP but traded up on the day versus EUR, JPY and CHF during the New York session.

A slow day for scheduled calendar news Economic calendar data is scarce on Monday 28. France will publish unemployment data. Reuters’ forecast is for an improvement from -56K jobs lost during October compared to 21K added in November. The data is unlikely to move the value of the euro versus its peers. The Dallas manufacturing index forecast should reveal a contraction; from 12 to 2. The reading probably won’t move the value of USD currency pairs.

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