US vaccine roll out lifts risk assets, final stretch in Brexit talks

1 min read

By Hussein Sayed, Chief Market Strategist at FXTM

The long-awaited moment has finally arrived. The US began the first shipments of Covid-19 vaccine on Sunday following the final approval from the Centers for Disease Control and Prevention (CDC).

The Pfizer-BioNTech vaccine has also arrived in Canada as several countries continue to authorise the emergency use of the vaccine, including Arab states such as Bahrain and Kuwait.

While the pandemic is far from over with many countries continuing to impose restrictions, investors are finally seeing the light at the end of the dark tunnel. What is being delivered in the US is more than just a vaccine but hope that life will soon return to normal.

Wall Street is expected to kick off Monday in the green following the first down week in three. The Dow Jones Industrial Average futures were up 150 points and the S&P 500 inched 0.5% higher in early trading. Meanwhile, the Dollar has given up most of Friday’s gains with the DXY index trading at 90.80.


US Stimulus

Following months of stalled negotiations, the bipartisan $908 billion stimulus proposal is likely to be put on the table at Congress Monday. Liability protection for businesses and state and local government aid remain the key sticking points.

However, there have been reports that the stimulus relief plan may be split into two packages to ensure small businesses, the unemployed and the sectors most impacted by the pandemic receive funding before year end. At this stage, any form of stimulus aid is going to be perceived as risk positive.


Brexit deal is not dead yet

Sterling rose against its major peers early Monday after the UK and EU agreed to carry on post-Brexit trade talks after crossing the Sunday deadline. The unresolved issues remain the same, namely EU fishing rights in British water and agreement on non-regression clauses.

Traders seem optimistic that a deal will be achieved before the end of the transition period. However, this assumption may be costly, as a no-deal scenario remains highly possible.

Expect volatility to increase over the next few days as we approach the December 31 deadline after which the UK would automatically fall back into the rules of the World Trade Organisation if there is no deal.

The Bank of England will also be under pressure when monetary policymakers meet on Thursday. If there’s no deal by then, expect the central bank to signal sub-zero interest rates and further increase the asset purchase program. This is likely to put some pressure on the Pound.


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