‘Just Because The Sun Is Out’

Markets looked poised to embrace a risk-on bent to start the new week, emboldened by rumors of Brexit “progress” and another stimulus unveil stateside.

Michel Barnier apparently expressed guarded optimism during a closed-door meeting of ambassadors, during which he said a divorce deal between the EU and the UK could come within days, although he described the path to a deal this week as “narrow.” While the headlines belied a largely unchanged narrative — “significant differences” remained — there are reportedly several blueprints (“avenues,” if you like) for a deal.

The French still weren’t particularly amused with the situation. “The British are the big losers from Brexit,” Finance Minister Bruno Le Maire said, during a radio interview. “Brexit is a madness: A political madness, an economic madness and a historical madness. I regret that my British friends will pay the price for populism, lies, and approximations.”

The pound surged by the most in two months. Specs were bullish for the first time since September as of last Tuesday. Sterling strength helped put the dollar on the back foot, which, in turn, acted as another accelerant for risk assets.

Stateside, the bipartisan ~$900 billion stimulus bill will be unveiled Monday in a two-part version, where liability protection and funding for state and local governments comprise one bill, while the other encompasses the issues on which everyone (or nearly everyone, anyway) agrees.

As of late last week, Mitch McConnell continued to insist that Congress should leave the debate around liability protection (a Republican demand) and local government funding for next year, while passing a (much) smaller package now. That said, he was reportedly on board with a competing proposal from Steve Mnuchin. That bill, while carrying a price tag similar to the cost of the bipartisan plan, differs materially on key points including the extension of federal assistance for the unemployed which the White House would apparently pare down in favor of one-time stimulus checks.

Lawmakers need to agree on something by the end of the week in order to attach legislation to a broader spending bill. Mnuchin spoke to Nancy Pelosi over the weekend.

Global equities came into Monday having logged a weekly loss for the first time since October.

On Monday, markets were “one-dimensionally positive,” SocGen’s Kit Juckes said, describing the mood ahead of the US cash open.

“I’m reminded of the chart-drawing ex-colleague who systematically removed Friday afternoon and Monday morning moves from his charts because they sent more false than positive signals,” Juckes went on to say, adding that “just because the sun is out, the mood is bright and we’re willing to go the extra mile, doesn’t mean that all is going to be well in the world for very long.”

The “extra mile” bit was a reference to Brexit discussions.