Market Drivers for Nov. 23, 2020
- Risk on to start the week
- Cable leads higher on Brexit talks progress
- Nikkei -0.42% Dax 0.86%
- UST 10Y 0.85
- Oil $43
- Gold $1869/oz.
- BTC/USD $18595/oz.
Asia and the EU
- EUR PMI Composite 45.1 vs 45.8
- GBP PMI Man 55.2
- GBP PMI Svs 45.8
A clear risk-on bid to the start of week’s trade with equity markets higher by 60 basis points while the dollar was lower across the board but especially so against sterling on renewed optimism over Brexit deal.
Investors were in a clear upbeat mood on further good news on the vaccine front as AstroZenica now also announced promising results that suggested 90% efficacy if the two-dose protocol was followed. The AstraZeneca (NASDAQ:AZN) vaccine also enjoyed the advantage of needing only regular refrigeration in order to be administered and therefore could be a better candidate for widespread rollout.
The AstraZeneca news was just one of several pieces of positive data that fueled a rally in cable. Sterling was up nearly 100 pips from Friday’s close leading G-10 FX on optimism over the Brexit deal, better than expected economic data, and AZ vaccine news.
The Brexit deal story continued to get a boost as reports over the weekend suggested that 95% of the agreement was done, but as many experts noted the 5% remaining was the difficult part with both parties still far apart of the issues of adjudication of any trade conflicts that may occur. Still, the market expectation is that a deal will be reached with the options market essentially pricing in the event. That suggests that the upside in the pair may be limited to the 1.3500 figure even if a formal deal is announced.
Even if the pound sees little follow-through on an absolute basis it may continue to outperform the euro on a relative basis as the economic data continues to favor the UK. The latest batch of PMI reading showed that the UK saw a sharp drop in business activity with the composite hitting 47.4 but that was still better than the data out of the Eurozone which saw a reading of 45.1. Both economies are suffering from the second wave of COVID lockdowns, but the UK may recover faster especially if its smaller population can get vaccinated faster with the AZ vaccine.
In North America today the calendar is empty and price action may be muted given the holiday week in the US but for now, the vaccine news continues to inject a note of optimism into the market outlook and risk on flows should persist.