Risk sentiment soured Friday as market participants weighed stalled stimulus talks in D.C. and the prospect of a no-deal Brexit, which was increasingly seen as the most likely outcome despite ongoing discussions.
Boris Johnson warned the public and UK businesses that a messy divorce is a “strong possibility,” while Ursula von der Leyen similarly believes the odds of an agreement by Sunday, the latest “deadline,” are slim.
“One-month risk-reversal levels in favor of GBPUSD puts are actually approaching March levels and this time it’s purely based on endogenous factors,” BNY Mellon’s Geoff Yu wrote Friday.
“However, one-year risk reversal indicates markets are far less keen on sterling downside over the longer term: the spread between the two has reached the highest this year,” Yu went on to remark, noting that “it’s as if investors with a long-term view have simply moved on and are not looking for Brexit to influence their decision-making over the currency.”
That may be, but in the very near-term, the prospect of a crash-out scenario, now suddenly very real, has markets on edge, and that was reflected Friday in equities. “Jittery sterling longs continued to hammer that sell button as event time decay looms, and having a deal buster go sideways on a Sunday when the market is closed screams pare down long position risk ahead of the weekend,” AxiCorp’s Stephen Innes said.
Meanwhile, Sanofi and Glaxo delayed trials of their COVID-19 vaccine citing difficulties in generating a sufficiently robust immune response in people over 50, which is obviously the key cohort. Apparently, a jointly-developed shot from CSL and the University of Queensland in Australia hit roadblocks too. Shares of Sanofi dropped. The Sanofi-GSK shot may now need to wait until the end of next year for distribution.
That was incrementally negative news Friday, and it came as Pfizer’s vaccine moved closer to approval in the US.
Also worth noting: Chinese shares had their worst week in months, as local investors continue to worry that the PBoC’s relatively tighter policy stance will pressure financial assets. The CSI 300 dropped nearly 4% on the week.
Of course, tensions with the US are running high, with Washington and Beijing trading sanctions threats, but that’s nothing new. “Cold War 2.0” is a stale narrative.
Right now, it’s about policy concerns on the mainland, whether that’s the PBoC’s commitment to ongoing liquidity provision or draconian measures aimed at reining in tech companies.
Now that you mention it, that sounds a lot like the situation in the US.
buy when there is blood on the streets, sell EURGBP
I am not sure I agree, UK economy lives primarily off things that are not very sustainable, pubs/cafes/restaurants (internal consumption) and real estate.
The big one is services (financial primarily, consulting etc) so the major export is talent and services but Brexit will likely make exporting this more dificult and so companies are likely to move their talent to inside Europe if this is being consumed from within).
No significant industry, some farming but not very competitive.
On the plus (vs Europe) has full monetary control.
So whilst I worry about Southern economies in Europe and their management & debt, the impact to GDP (has been worst in UK) and a post-Brexit renaissance is something I fail to understand how it will happen, Europe brings more diversity but bigger debt. Whilst tourism will recover in Southern Europe which will help post-COVID.
Both Central banks have the presses hot, so I dont see much difference there, it will be economically which one will fare better after Brexit, I think the UK has more to lose.
The blood has not really started to flow – it is still hypothetical – no sense trying to predict a decline in future momentum when we havent seen the first minute of the event.
I would consider it until the real consequences of no deal / token deal are visible to the UK public. Then I would think about it. But until the lines of trucks outside UK ports peak…