Daily Alert – Friday 16th October 2020: Brexit trade negotiations go full soap opera

Mark NugentDaily Alert, Oct 2020

Daily Alert – Friday 16th October 2020: Brexit trade negotiations go full soap opera

This week, the Brexit trade negotiations got to as new level of silly. On Wednesday, the UK negotiator David Frost told UK PM Johnson that a deal was possible and that he should not walk away for the talks. Remember, Johnson set himself a self-imposed deadline of yesterday to have a deal done in principle or it was game over.

On Thursday German Chancellor Merkel said talks were constructive and intensive but that there was still some way to go. At the European Council Meeting yesterday, EU leaders agreed to extend the talks for a “few weeks” but the press release failed to mention “intensive negotiations”. David Frost said he was surprised by this. Then the EU openly said it was refusing to change its negotiating position (on fishies and state aid) and as such, PM Johnson said the negotiations “are over”. European Commission President Ursula von der Leyen then tweeted from her Covid recovery room that we are still negotiating “intensively” and we’ll see you in London on Monday. What a soap opera. I believe the chance of no deal are 0%. Not tiny, or small, or very, very unlikely. The chances are ZERO.

In the US we had two potential Covid vaccine trials halted over safety fears. It is not the end of the road but it pushed sentiment negative from a positive start on Monday. The media has been obsessed with the ongoing Senate hearings for Supreme Court nominee Amy Coney Barrett. I have to say I had it in my mind that senators were a different breed to representatives. A higher, better breed. Turns out that is not true. Just a different level of self-obsessed brazen stupidity. There was little going on in the US to move the market.

In Australia on Wednesday, Reserve Bank of Australia Governor Lowe said interest rates could go to 0.10% (currently 0.25%). This pushed down the AUD as you might expect.

Overall, risk sentiment was positive on Monday, went negative on Tuesday with the vaccine issues and the fading hopes in the US of a Covid relief package, stayed that way on Wednesday, and then on Thursday and so far today has been indecisive.

US equities are ever so slightly up on the week, Europe down and the AUS200 up on the comments from Lowe (equities love low interest rates). Oil is flat and GOLD is slightly down.

On currencies, the JPY has had a 5-day bullish run, despite the changing sentiment (making trading hard). The commodity currencies (AUD, CAD and NZD) are down, acting in the opposite direction to the JPY, as expected. The USD is up on the week although choppy. The AUD has been down all week, aided by Lowe’s comments. Both the EUR and GBP are up over the week – let’s face it, a trade deal benefits both the UK and the EU and in the harsh light of day the politicians know that they need to deliver value to their electorates and failing to reach a deal is a political failure with an economic impact that all will wish to avoid.

I placed no trades this week due to an abundance of caution. Hindsight says that trade of the week was AUDJPY short, although the disconnect between sentiment and JPY pricing would have delayed entry until Tuesday at the earliest and, on current pricing, it would be difficult to make more that 1x risk.

Have a great weekend and I’ll be back on Monday.

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