16/11 – Vaccine hopes power stock markets higher

GBP: Another Brexit week

EUR: Euro driven by stimulus hopes

USD: Vaccine news keeps dollar offered

Sterling

It’s quite amazing how dulled to Brexit risk sterling assets have become in the past few months, even as we reach the season finale of these negotiations. It’s safe to say that this Thursday represents a risk to sterling just at a time wherein a lot of the investment community seem to be positive the pound heading into 2021.

It’s unclear whether Thursday’s EU summit will see the UK and EU talk through the night to achieve a sleep-deprived agreement but the deadlines cannot just keep falling by the wayside without a sharp move lower for the pound.

A deal, in whatever form, seems almost universally priced in at the moment, leaving the opposite outcome a bet with a phenomenal risk/reward. The hope remains that a Biden win in the US and the departure of Vote Leave advisers from Downing St in the past week heralds a fresh start for UK politics and there would be no better way than with a UK/EU deal; a fresh start seems almost impossible without one.

Euro

European assets are also moving higher on vaccine hopes this morning although within a limited range as investors remain guarded given increases in local infections.

We have no fewer than four ECB members speaking through the course of today with everyone in markets focusing on the size of the ECB’s stimulus increase due in December.

US dollar

The USD is weaker this morning as markets once again jump on optimism over a covid-19 vaccine. It’s both natural that markets are focusing in on the reset button that a vaccine could offer to the world given the changes that the pandemic has forced upon us, and also expressing the negativity that record hospitalisations are being seen in more and more of the world, in particular in the US.

Stimulus conversations in Washington are not offering much more than headline risk to a market that looks ready to move back into a world of political calm. In light of this and the slew of central bank statements we are due this week we expect risk assets to remain volatile this week as market participants cast doubt on the efficacy of a vaccine in a world that may not want to take a shot rushed on to the market and without an idea as to the longer term ability to inoculate the user against the virus or any future mutations.

As it stands a Pfizer press release is not going to change the need for concerted, coordinated fiscal and monetary policy stimulus in most western economies in the coming months, and when the markets seem happier that that the only way is up, the USD will be in the firing line against many currencies – we favour AUD & CAD – as we head through the early part of 2021.

Elsewhere

A trade deal between the 10 ASEAN nations plus China, Japan, Korea, Australia and New Zealand, forming the largest trading block by GDP and 2nd largest by the size of total goods trade is also helping risk higher this morning. Alongside stronger Chinese industrial numbers and the prevailing narrative of a vaccine, emerging market currencies could be in for a positive few sessions.

Have a great day.

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Jeremy Thomson-Cook

Jeremy Thomson-Cook

Jeremy has over 13 years experience working in the FX industry. As a specialist in political risk mitigation and currency hedging, he regularly advises clients on the day-to-day moves of the markets and the implications of fiscal and monetary policy on international businesses.