Written by: Craig Erlam | OANDA Europe
US futures on course to pull back a little further from the all-time highs reached on Friday as the market awaits further bullish catalysts over the coming weeks.
We may be heading into the festive period but we're a long way from officials easing their way into the holiday season. Everywhere you look, negotiations are underway to prevent a variety of very undesirable outcome, whether that be no-deal Brexit, US government shutdown, the expiration of Covid relief measures or the failure to pass the EU budget and relief package.
One thing they all have in common - apart from having significant economic consequences at a time we least need them - is that they all need to be resolved by the end of the year. The other thing they all have in common is they're being negotiated by officials that love an eleventh hour deal. These people thrive at a minute to midnight, which doesn't bode well when it comes to festive plans for anyone involved.
On the one hand, this means there's a multitude of downside risk for markets that have performed exceptionally well since the start of November. It's not all doom and gloom though. That also means that, should everything pan out as it should - and is expected to - stock markets could get a nice boost into the end of the year. Perfect timing for Santa rally enthusiasts.
Stock markets could get another shot in the arm as early as this week, with the FDA meeting on Thursday to discuss the Pfizer/BioNTech vaccine. But that may prove temporary, with investors overwhelmingly expecting the vaccine to get the backing of the regulator. The real jolt in the markets would come if they don't give it their backing, especially with the UK already rolling it out to the most vulnerable from today.
Thursday also brings the ECB meeting, at which more stimulus is widely anticipated in the face of a severe second Covid wave across the continent and widespread restrictions and lockdowns. I'm sure the central bank will have been hoping to know more on what form Brexit will take three weeks after the conclusion of the meeting, but wouldn't we all.
A deal this week is possible as Boris Johnson heads to Brussels to meet European Commission President Ursula von der Leyen, the reverse leg between the leaders after their meeting in London earlier this year. Significant differences remain, we're repeatedly warned, the one difference now being the time left on the clock. The nerves are well and truly creeping in.
The pound has rebounded a little today as the UK and EU managed to reach agreement on one contentious issue, the Northern Ireland protocol. The resolution means the clauses that threatened to break international law in the UK Internal Market Bill have been removed, whatever the outcome of the Brexit talks.
Some have viewed this as a good omen for the talks, with relations seemingly improved ahead of crunch talks between the two leaders. The fact that this agreement resolves the issue, deal or no-deal, makes others feel a little less certain. The pound is seeing some reprieve but with nerves clearly now kicking in, I expect plenty more volatility in the coming days and a significant plunge if talks collapse this week.
Oil pares gains after OPEC+ deal
Oil prices continue to pull off their highs in the aftermath of the OPEC+ deal. The deal delivered enough to sustain the moves that occured in the weeks leading up to the meeting but with the group deciding future output on a month by month basis, there's plenty of opportunity to accelerate the reversal of cuts should the economy perform better than expected. It will be interesting to see how producers respond in the event that US shale comes back online faster than anticipated, given the sensitivities there.
Gold holding above $1,850
Gold is having a very different December to November, when it plunged in the aftermath of all the positive vaccine news. While nothing has changed on that front, the yellow metal is once again finding some form and has even broken above $1,850, as US lawmakers work towards a fiscal deal. I do wonder whether it has enough to sustain these moves though and think another test of the lows shouldn't be written off. Of course, the Fed next week may give it another helping hand.