tv Bloomberg Markets European Close Bloomberg December 23, 2020 11:00am-12:00pm EST
guy: live from london, i am guy johnson. kailey leinz is in new york. toare now counting you down the european close. what do you need to know out of europe this hour? the pound rising sharply as a post-brexit deal is said to be close to agreement. it could come later this evening. u.k. announced tighter restrictions over millions. italy finding a case of the new variant that has no u.k. link coronavirusny the deaths have hit a record high. the cross channel border reopening and there are still thousands of trucks trapped on the wrong side of the channel. let us talk about the markets because the brexit deal is front and center. i want to start with the pound and start with the rallies that we are seeing. the pound is rallying sharply as we anticipate that we are in the
home stretch of getting that brexit deal done. it could come as early as today. numerous media outlets reporting that the negotiators are said to still be in the room pushing for the deal, but we are getting a reaction in the cable rate. point 3527. we are interested in volume, so we -- you may see outside views. but you can see the staffing looks like and what the liquidity around sterling could be. it is christmas eve eve. but as talk about the other assets moving. but you have a big mover in the u.k.. you do have a broadly in the 30 year, u.s. 30 year up by seven basis points. in terms of equities, they are higher. we are looking through the concerns around stimulus stakes -- stateside. the s&p is up by .4%. brent crude up by 2%.
kailey: as you were mentioning, the u.k. and e.u. are on the brink of an important post-brexit trade agreement. they are hopeful that a deal could happen by today. joining me is head of u.k. and europe macro charm edge -- coverage. what would be more surprising to you if we got a deal in the next couple of hours or if it gets pushed on? >> if it gets pushed on that will be a negative sign. because this morning the expectation was between christmas and you year -- new year would be more likely, but there has been big movement over the course of the last few hours and i think it has come from the u.k. side, because the e.u. is doug and on fish and the level playing field. the government is quite keen to get a deal through and avoid the charge that they are not going to allow for proper scrutiny, which would be the case for an
agreement struck at one minute to midnight prior to the 31st of december. we have seen over the last few days trucks being stacked up at over. nothing to do with brexit, everything to do with this new covid variant. nevertheless, there has been a lot of commentary that this is to some extent a warm up for a hard brexit. do you think that has focused minds on the u.k. side? as: to some extent, yes, but you have said i do not think the french did anything here to signal to the government or use this as leverage on the brexit negotiation. i think this was about they are concerned -- concern about mutant covid. big problems for macron last year. the government has been minded to do a deal and we have had a probability at 70% for some
time. i think the big structural drivers are to get it off of the headlines and focus the government on the next agenda and move the national conversation on, inking about scotland and the covid mass, and the economic risk of no deal. but there are many other big ones. i think we were always sure that a deal would be got -- deal would be done and we are seeing that coming together as early as tonight or tomorrow. kailey: how consequential is the position of the deal, doesn't matter what is in it or just that the market? it cares about that it just gets done. takethe most important away is a 0-0 deal. this is still a hard brexit. the government is exiting the customs union and singles market , andrading on zero tariff zero quota and that will be confidence that the two sides can build on this relationship going forward politically,
diplomatically, and economically. it puts a floor under the relationship and allows it to be developed going forward. if that were not to happen that would be uncertainty about when the two sides can get back around the table it would be bad. i think it is more the signal that the two can cooperate and come to an accommodation now that u.k. will take that very comfortingly and reassuringly. guy: just describe how you think this elation schiphol work going forward? there has been a lot of disagreement over the last four been a lothere has of mudslinging over the last four years and frustration. how long will that take to unwind? juryi think it is an open as to whether the agreement will for more as the basis
constructive cooperation going forward, the problem i think with that kind of an outlook is that it suggests on some level that the government will but -- will be back on a path towards things like the customs union and the single market. we know the government want to diverge and do things differently. if that is where the u.k. is heading, you could argue it creates the basis for a lot of friction and conflict going forward. if the you keyed -- if the u.k. does things differently, it will introduce more friction in a way that europe is doing something different. creates the risk of more friction and litigation. that is actually one clear pathway and the other is you build a more robust economic relationship. the problem with that is that it suggests that the government is on a pathway to institutions
that it is on the verge to leave. the outlook going forward is difficult to predict, but the risk is that it is one that is characterized by ongoing friction litigation and tension. that absolutely is a possibility. kailey: it makes me want to ask, what will have we learned -- what have we learned about the european side, how they stood by france on keeping that hard line on the fishery issue. what have you learned from the united front that the european union and commission have put on? mij: i learned that macron and merkel is absolutely consequential to e.u. unity, and that european union as it is conceived today, the franko- german dynamic is important. they -- macron did her a favor. he wanted to go hard on poland and hungary but did not because he knew that it would put merkel
in a corner and as a result on that, she has not broken ranks with him on fish and has supported him throughout the negotiation. there was something of not an explicit trade-off, but in understanding that i will scratch your back here if you do mine on the brexit question. obviously, merkel leaves next year which leaves -- leads to a big leadership change, and we will need to see how that plays into the dynamic next year, but the franco-german alignment has been clearly -- has been key. and brexit has been a teambuilding and -- exercise for on other because issues they are much more fragmented. look at turkey, the recovery fund, and a litany of other issues. where does this live the u.k.'s relationships with the
united states and the incoming biden administration? mij: it puts it on a better trajectory and allows the u.k. moves through the g7, chairing the g7. the top climate summit at the end of the year, it allows the government to run with the global written narrative and -- britain narrative and seek to be a multilateral player. the big piece was the northern ireland protocol, the government conceded on that. that was the thorn in the relationship and we have overcome that. i think a biden administration will want to see the u.k. able and willing to work with its nearest neighbor -- neighbor, and a deal that delivers that will build equity in the white house and with biden personally. it does deliver the basis for a more cooperative and closer relationship than -- and i think that was part of the motivation
to get the deal done. kailey: as we are talking we have the brexit drama going on, but also covid numbers continue to cross the wire. we are just starting to get the numbers from the u.k. and italy. u.k.focusing on the reporting 39,237 new virus cases. that is significantly the most since the pandemic began, and speaks to this idea that this new variant is having a significant impact in boosting the r number, the transmissibility seems to be significantly higher and as a result the u.k. is climbing. we are getting the headline that we have been waiting for, the outline of a brexit trade deal has been agreed, this according to officials. we are now getting confirmation that the outline of a brexit trade deal has been agreed. we will wait to see exactly what
the details of the deal look like, but it looks like a deal has been done. let us get a couple of reactions to this, because i want to bring in steve englander. we are still with mij. just your thoughts on the fact that we have a deal done. mij: i would need to see a dashed see the detail, but as we said we have been at 70% probability prior to the end of the year. we are not surprised that it has come together, that was our strong base case. the timing is quicker than we expected, but, it is a good sign and i think it means that the u.k. has moved closer to the e.u. position. as of this morning the union was not budging, and i think the big move has been on jumps inside. kailey: standard chartered ahead of research, -- head of
research. we see yields up 13 basis points. was this a binary outcome? we were going to get a deal or not, but now that we have one it is a go-ahead to belong on the pound? steve: it is a go-ahead for a certain distance, because once we get the deal done, and, at this stage, 70% is low, and given the amounts being made, we will see sterling go up further. we have an expectation that it trades up to 140 on the deal, because that has been the only driver of sterling, over the last few months. the question is what happens afterwards and, given that the u.k. has what it wants, how well does this fair in the next situation? in terms of what happens next, what do you think the
long-term trajectory for sterling is. do we get back in the medium-term to the kind of pre-brexit levels. a lot of economic damage has been done since then by brexit and covid. what is the long-term trajectory , what is fair value with a deal done? sterlingdo not see going much over 140. we are very cautious as to what happens afterwards. in addition to the factors that you mentioned, obviously, there is the splitting of the u.k. in terms of natural services from the continent which could do some damage. will arguehe u.k. that it has a lot of flexibility outside of the e.u.. we will have to see how they use of flexibility and whether it generates tangible gain to offset the loss of trading relationships with europe. that is up in the air.
you know, i do not see much reason for short-term optimism, which is why we have our 140. it could be that that evolves in a positive direction. we will have to see. kailey: obviously, we do not know the details of what is in this deal exactly, but given that there is an outline, does this remove any political risk in the u.k. or on the continent? the big this is headline issue, and i think that will absolutely dominate the concern, the clients, i have been talking to, for much of the year. i think there will be more ofstions around management covid and repairing the finances , and a consequential election in scotland and independence will be key. the deal that boris johnson has done stick a border in the irish
sea. that does mean that northern ireland will look more like the republic and the e.u. all england, scotland, and whales go their own way. that border gets thicker over integrityhere are risks from northern ireland as well as scotland, and of course, boris johnson in his own longevity will need to seal the deal, how he sells it and how it plays into his leadership into next year, but questions are being raised about whether he can continue to lead the governments into the next elections, which are 2024, but that will be a question as well. there are many questions that will linger into 2021. to bring another voice in, david merrick, the senior executor editor to get the details of what we are learning. we saw the flash saying that the outline of a brexit steel has
been reached according to officials. when do we start as kaylee -- kailey hinted at to get some granularity? david: these headlines are only crossing the terminal just a few minutes ago. this historic deal has been reached at least in terms of the outlines. we are not 100% there, but what are reporting a showing is that we will get an announcement soon, and what that means is that these big difference as that we have been reporting on for such a long time, particularly in the last few days on fisheries, it seems a compromise has been reached. but the compromise as we do not know, but we shared -- we should learn it soon. the vast majority of the text is good to go. it might belong and we may get our hands on it later tonight and we will unpick the details. or instance, for the fisheries
question, not impactful for the economy, but it will be interesting politically what boris johnson has made and has there been a move on the e.u. side to the landing zone where an agreement has been made. should know soon. kailey: the market is reacting fast and furious. up 6/10 of 1%. you can continue to see strength in the pound and investors selling sovereign bonds across the curve. the guilt yield is up 13 basis points. treasury yields moving higher. i want to bring you back in, because it is not limited to the u.k., it is global. how big of a sigh of relief are global markets signing just taste on this outline of a deal. how global was the risk? a decentthink it was second order risk, i do not think it has been a driver for more than a day or two.
today, it may push yields off a couple of basis points. i think that it was viewed as important, but not as kind of deal breaking across the world. chaos, itcended into would have been a different question, but i think the assumption was that they would find so sort of way to muddle through, and u.s. yields are going up because of this deal on the back of european yields going up. it know, i think it is ok, is positive for risk and one headache out of the way and it is time to deal with the other. , it is in the short-term limited in terms of impact. steve, i want to stick with the pound reaction. we are getting a pound reaction, but in some ways it feels fairly
cautious. i guess to the point where we were mentioning that we are going to wait until the final announcement and details. they, as ever will be important. in theory we are in light liquidity. i would have thought the pound would be more jumpy. going to be to get the pound up to 140 -- 1.13 -- 40 if we are struggling on 1.35 on the announcement that we have a deal. steve: it seems to have surprised the bond market and since yields are going up, it seems to have surprised the equity market. the odds are is that it is going to be somewhat of a surprise in the fx market. we may be lagging a little bit and there may be liquidity issues going on. but, i think that we should see some fx reaction, more than what we have seen so far.
again, keep in mind that we are trading in the low 120's when the market thought no chance of a deal. we have already gone a long way. and, i think increasingly the question will be, where between 1.35 and 1.40 does this stop? the first question of it was, the brexit yesterday no question phased and what happens next, and what does the landscape look like now they have gotten this deal, and how much friction is there going to be over the next years in terms of interpreting the deal. you back want to bring in, i know there is a lot that you still do not know, do you have indication if it was the u.k. who said it would thought it would be the u.k. who moved? do you know? david: we have not seen anything
that suggests one side one way or another. we really do not know. we know on this crucial question of the fisheries, both sides budget. the european discussions wanted no change at all, but the british were saying they wanted a 60% repatriation. they have been moving together, and the landing zone seems to be around the middle between 20 and 30. both sides will spin this as a victory, there is no doubt that boris johnson will come back to parliament and say that he has won a famous victory and europeans will want to say the same that they stuck up for the single market and for french and dutch fishermen. both sides will spin it, but throughout the entire process the british have been gaming -- gaining more ground. you have a much larger market on the european side than on the british, we will have to look at that grin you will -- granule
detail. if they are given too much ground, there might be trouble before the end of the transition. -- transition period. guy: let us talk about potential risks to any deals that ultimately are done between david frost and shell. thehere any risk that member decides it does not like the deal where it wants to hold the deal up, how easy will be ratification? mij: i think it will be straightforward, i do not see
any risk on either side. i think that michelle has been very connected to key e.u. capitals and the european parliament. it will now ratify the agreement until the new year, they will do it retrospectively after a review in january, so this is unanimity among member states. they have not set -- seen a legal text. they will see that today in a working party session being held in brussels as we speak. they will begin to digest the actual language in the treaty and have a few days to do it. they will not like it and they will be kicking and screaming, but something happened in the context of the article 50 negotiation, so i do not see any of the member states vetoing the deal or preventing an agreement being implemented on the u.k. side. i think it will go through. i think that will be 15 to 20 hardline european research groups will not support any deal. he has a majority, so a comfortable cushion. on laborthe tory mp's constituencies have been brought in line by forecast that expected a 2% drop of gdp or they are not in agreement. i think it will go through on
tory votes. if it did not, the labour party will support a agreement. on both sides that will not be risks to the deal. the politics is a different question. that depends on the deal and whether or not he is capable of selling the detail. we will need to see the detail in order to do that. kailey: if we operate from the assumption that the deal will sail through, how easy does that make life for the boe, does it take negative went -- negative rates off of the table? steve: it takes it off the table for the next six months or so, and we will have to see how the u.k. economy evolves. banksk that most central that have not tried negative rates are very reluctant to go there. financialamage to the system and uncertainty on whether it works, and it is unclear why the rates are zero going to -25 basis points will do much going from 200 basis
points positive to zero did not help that much. i think that it is something that they want to keep in their toolkits, but it is kind of a hail mary, it is a kick from midfield trying to get a goal. it is not really something that they would go into with any degree of enthusiasm, and, i do not think that they would go into it with any expectation of what it really would do, except on exchange rates, in the short-term it does some damage, which they would consider to be a positive in the circumstance, but is not really, i think an option that they look forward to. which is the biggest factor right now for the next six months when you look at what is going to happen with u.k. assets? a brexit deal, or the fact that covid is clearly not under control in the u.k.?
they just posted a huge number in terms of new cases. we saw an announcement from matt hancock and we are seeing further restrictions, widening the net in terms of people in tier four, the most onerous of the restrictions. which of those two will be the bigger drive -- biggest driver of assets? ritika: i think -- steve: i think that right now the brexit deal, as your other person is saying, it is 70% in the market. so it will have some kind of impact. if covid turns out that there is any uncertainty over the vaccine's effectiveness and turns out that the new strains are more deadly, than the previous strains, i think that will have the biggest impact. a globalt will also be impact, because the odds that they can be contained in the u.k. are virtually zero.
so, i think right now there is no reason to think that the medium-term picture is different where people get vaccinated and the vaccines are effective and we are able to return to normal life, but if that story comes under question, i think all bets are off, it is not just the u.k. asset market, that is a global asset market. kailey: i want to bring you back in. i am waiting to see if more headlines are crossing. i know we do not have them as of yet. are you hearing anything on timing and when we could get finalization? david: know, we are still in the dark and glued to our screens waiting for the news. we are just told that some point throughout the rest of this afternoon or going into the evening, obviously in brussels they want to get this finalized and we know that the negotiating for manythe u.k. side
days are exhausted. they want to get home for christmas, and we are expecting some more news as the evening wears on, but for now we just have to wait for those details to emerge. as you try and figure out what exactly happens next year, and how this is ultimately going to end up unfolding, sorry -- we seem to have lost mij, so i will ask his question to david. , i am being told. steve, how bumper -- how bumpy do you think the trajectory will be? this is bare-bones at the moment. sensible will the u.k. asset speed to the twist and turn. are we done with the process? steve: we are never going to be done.
deals, especially when they are finalized at the last minute, often there is ambiguity and differences of interpretation and the provisions, plus once they are done, the political and negotiating lines get changed. so, i think that we have ongoing discussions, and friction between the two sides. i do not think it will have a colossal asset market problem unless there is some real -- or fisher where one side says this is no good and we are going to tear a few off or take some measures. i think that the idea that this is like a clean bill of divorce in each side goes its own way, and the assets are divided, the custody is agreed on, i think that is too optimistic, but it
will not necessarily have a first-order impact on asset prices unless the subsequent frictions of discussions really are unexpectedly bad in the sense of the situation deteriorating. be a surprise, but it would have an impact on asset prices. guy: we are going to leave it there. thank you very much for your time. steve englander joining us from standard chartered. and today did merit of bloomberg news. we will continue -- and to david merit of bloomberg news. we will continue to follow this. european equity markets down with what we have seen over the past few minutes. the pound is trading $1.35 at the moment. there may be a certain amount of hesitancy here in the market, waiting to see the details of the deal, waiting to see official confirmation that it
has been done. the pound is certainly trading higher, but as we were just hearing, $1.40 the target for standard chartered. others have similar numbers. we are certainly not breaking higher to those kind of numbers. we are trading 1% to the good. in terms of the other assets worth paying attention to, the ftse 100 is climbing, up by 0.75%, as you can see, up by around 0.6%. there's negative feedback into the ftse 100 because of all of the international revenue streams. there are more accurate things to look at in terms of u.k. assets, the ftse 250. that has climbed, so that is up by around 1.71%. that highlights the international versus domestic story surrounding all of this. 50 gaining.
we are clearly seeing a climbing yields and a selloff, particularly at the long end of the bond market. this is not limited to what is happening in the u.k. we are seeing 30 years climbing on both sides of the atlantic, but certainly a very big move in the u.k. in terms of the yield move we are seeing, 14 basis points in terms of the climb. let's read out a list of stocks i am seeing on the move this afternoon. i've got the asx here. lloyds bank climbing significantly, up by around 7%. bp and royal dutch shell up as well. barclays up by 3.6%. persimmon, one of the u.k. house builders, is climbing quite sharply as well. on the downside, astrazeneca, unilever, glaxosmithkline all giving back some ground with the international footprints, but certainly you are seeing an impact in the pound and in the gilt market, particularly at the
long end of the direction, and more importantly, what you're seeing is a fairly substantial move as well in the u.k. banking sector. so we are waiting to get confirmation. the oneteresting, dollar 35 cents story. we have seen a pop up, but we haven't seen a bigger pop. i expect it is until we get confirmation of the deal being done from officials sources that we will see that. kailey: very good point. we know an outline of the agreement has been reached, but not that one has been finalized. officials have told bloomberg that it has yet to be finalized, and it could be hours before any announcement is made. let's get more context on the history of this moment. adam posen, peterson institute president, joins us now. assuming we get a finalized deal in the coming hours, how significant is this agreement? adam: less significant than it first appears, and my view. obviously it is great not to
have the complete backup we are seeing now for reasons other than the med tech -- dendy -- then thek pandemic coming back, and they will not be generating further uncertainty. but as some of your colleagues have already said, this is about an ongoing governance of the relationship between the eu and the u.k., just like mexico and the u.s. have to have an ongoing economic relationship, even if usmca is passed. moreover, this is still brexit. this is still not having full access to the siegel market, not having a voice in the regulations they need to meet to access the single market on the part of britain, not being able to export services which is their main high-end product as well. so good news, but much less significant than people make it out to be. how do you see that
relationship developing? how confrontational do you think it will be once we get through the sort of politics? at the moment, it feels very politically driven. i am wondering once we get into a more technocratic relationship , whether or not the temperature gets taken down a little bit, and it is actually easier to make the relationship work? adam: i sincerely hope so, and i think it is a reasonable hope on your part that there are things, cooperation in research and development, agreement on technical rules for chemical or for energy or air travel, on and on. you can come up with a whole politicized less relationship should work. but you are just going to still keep running up against the fact that either you're going to have dynamic alignment, as they put it, that the u.k. will continue
to evolve its rules to be compatible with the natural , orution of eu regulations the u.k. will not have the kind of access to the market it once had. but is fair on both sides, that means ongoing friction. this is a big story, but just to remind you, we are right now seeing friction between the u.s. and the eu over this you investment deal with china -- this eu investment deal with china. even in fighting over fishing fleets, symbolism to have divergence. kailey: let's talk about the relationship in particular with the u.s. does getting a brexit trade deal have a more chemical split -- trade deal, having a more amicable split of the u.k., allow negotiators to never date a new u.s. steel as we see the bonded administration coming in? dom: at the margin, but i
believe, except for the last couple weeks, where von der leyen and a couple others got involved, that this has not been as much of a drain or a focus for the eu and for the european commission beyond the hard work of barnier and the negotiating team. this is the sad thing that the u.k. has to deal with. they become less important to the eu, and as a result they become less important to the u.s. sureherefore, i am not that this friction makes things better or worse with the eu very meaningfully, or rather the removal of it. sorry. damage has been done to the u.k. economy this year? we are waiting for brexit. companies are trying to figure out exact a what they should get ready for. they've spent a lot of money doing that, but they simply do
not know ultimately what they should have been preparing for. brexit --ou've got then you've got the covid crisis on top of that, and we are certainly not done with that. do you just have a sense of how long it is going to take the u.k. to recover from all of this? adam: it is very difficult to decompose, to use the technical term, all of the different factors. obviously if there is good news on a vaccine and the johnson government doesn't mess up the distribution, there will be a recovery in the u.k. obviously, a removal of some of the downside uncertainty for certain industries. a brexit deal is beneficial, but sorting all of that through is going to be very hard. is ink what we can say expect the u.k. to be the slowest economy among the g7 or the rich countries of the g20 to return to its precrisis level of
gdp. i expect the damage to productivity and the interruption in investment to be quite low relative to the recovery we are going to see in the u.s. and the rest of europe. there may be a little bit of a burst over the next few months, which the government will make a big deal out of because there is something of a relief rally, some removal pent-up, but in reality, i think this does scar the u.k. economy, and of course, the covid mismanagement, just as in the u.s., brazil, or elsewhere, is long-lasting. kailey: what does that mean for the boe? adam: i heard you discussing with your colleagues the issue of negative rates. i think there is still a higher chance, and i agree this may put it off, whereas i thought it might be by the february , but i think in the
end, but you're going to have is a pound that is still overvalued for a country that has fundamentally eroded its trade think that the bank of england monetary policy committee is going to be looking becausenegative rates the other tools in the kit are not likely to respond to that problem. again, it may get kicked off because depending on when you get the vaccine rally, it may be lookne, if things do not so bad. my guess is there is a much higher chance that the bank of england will have to resort to negative rates. the chief economist who has been much more bullish on a british economy than many over the last few months was voicing concern the other day about the fact that the boe is going to have to be super vigilant in
dealing with any uptick in inflation. he sees that as being a serious concern. the boe needs to be super vigilant. the last thing we need right now is in inflation stock. risku think there is any of what he is talking about? adam: i think the risk is lower than andy is putting it out to be. i mean, he obviously believes it, he has his team and has made his assessment. i think a lot of external members look at the data and find it difficult, especially if you are not pricing in a significant decline in the pound. so where is the inflation going to come from? you will get a bit of inflation one time from some import prices going up. you will get maybe a bit of inflation from pent-up demand.
both of those are pretty temporary. you're not going to get a huge amount of wage inflation. seet is difficult for me to inflation is a big risk. so vigilant, right. ok. [laughter] kailey: very fair point, adam. you mentioned wages. i want to ask you about the u.k. job market in particular. we know that rishi sunak has extended the furlough program to april. is that going to be enough? you were speaking about the weakness in the u.k. economy. will that get them through? adam: in terms of human suffering, it may not. in terms of the labor market, , obviously thens u.k. has started rolling out the vaccine, so given way -- given when you might have a recovery, it is not unreasonable to think that april may be soon enough. sorry, i am not trying to mince words here, but i think it is
important to make this distinction. is to only extend the furlough program as long as it takes to bridge certain exposed businesses over the april is probably -- if your goal is to prevent ,asting harm to working people to the education of children, to the public health service, to the underlying capacities of the british economy, then you probably want to accompany that by some other forms of spending that it doesn't take the chancellor to continue right now. washington. in i am curious as to your take on the possibility of a deal now being done between the u.k. and the united states, and how
difficult that would be. the lesson of brexit i think is trade deals are difficult to do. they are not oven ready. they are not ready to go straight out of the bag. how long do you thing that could take, and how difficult could it be, do you think, for the u.k. side to negotiate? adam: i think your point about it not being oven ready in the british sense is absolutely right, and additionally, you mentioned earlier the thaticization, the idea there was a ticking deadline and real prospects of disruption, which we are already seeing in the u.k. economy. the deal would be the prospect so innimal impact, addition to all of the difficulties inherent, there would be no impetus to it.
, youhe biden adminstration look at the nomination of the u.s. trade rep, there's a lot of expertise in enforcement, in china and usmca. not a huge amount of focus on transatlantic. i just don't see a u.s./u.k. trade deal as being a likely initiative any time. there's just not that much in it, frankly, for the u.s.. the president elect is having a limited amount of credit to use with his party in trade deals, this would not be the priority. guy: had a fantastic holiday. as ever, we appreciate your input. thanks for all that you have helped us with this year. adam posen of the peterson institute. let's talk more about what is happening in the foreign-exchange side of the fence. james foley, rabobank of fx
strategy, and bny mellon's senior strategist joining us now on the line. jane, we are $1.35 on the cable rate. the allen a video -- the outline of a deal is being done. are you surprised at how muted market reaction is? jane: not really because when you look at other sources, we are told that the deal might not be announced potentially until tomorrow, so there is still a little bit of uncertainty. i think perhaps while we did push up quite a lot in the last few hours, sterling is already off the highs, and i think it is really waiting to see whether or not that deal is signed and delivered. kailey: the bond market doesn't seem to have any uncertainty about a deal being done. gilts are off the highs, but still up 10 basis points. what do you make of that? >> i think right now, the markets are quite comfortable with the entire situation, and
the ethics markets are just playing it by ear now, inching bit by bit. i think as far as u.k. assets are, you will get a bit of a relief, then we go back to cold, hard u.k. fundamentals, which outside of brexit are still not in very good shape. we are continuing to see the covid story ripping through the u.k. assets. we have seen today record numbers of cases. we have seen extension of the covid restrictions. just in terms of what is actually going to end up setting the pace here, which one of those factors do you think is going to end up being dominant? geoff: i think it is what is going to happen to the u.k. economy and how the government is going to respond once they are presented with the fallout too dependent. i find it quite interesting that while we are talking about
europe and the fiscal to millis package in the u.s., chancellor sunak is actually singing about trying totraint, still be glass half-full even though the data is consistently disappointing to the downside. i think something is going to give over the next few weeks or so, and policy will have to react accordingly, and have a knock on effect on sterling and on markets as well. kailey: euro pound right now down around 0.8%. where do you think the euro goes from here off the back of a brexit deal? jane: of course, this is good news for the euro as well, and perhaps that would mute the reaction for eurosterling, but to be honest, i would agree. i think sterling still has an awful lot of hurdles to contend with early next year, and perhaps a little bit longer than that. thead also this afternoon news that more of the southeast of england will be placed in those tier four restrictions,
and that is really bad news the economy. i think the market is beginning to realize that not only is q4 data going to be bad, but q1 data could be quite bad as well with these restrictions. so there's a lot of bad news also to come from the economy, and this is going to be balanced with the news that a deal is done, but you've also got to her that this deal is only going to be a skinny deal. that's going to worry a lot of course, the prime minister is under a lot of pressure from his own mp's. that is potentially going to create some uncertainty for the plan, too. guy: one of the other big risks the u.k. faces is the relationship with scotland. i am wondering whether this deal is enough to keep scotland part of the union, and if it is not, whether or not that is another headwind, that potentially we are going to have to start to deal with next year. we have elections in scotland
next year. i am wondering whether the independence movement is going to gain further traction, and whether or not this is something that could ultimately end up weighing even more on sterling's outlook. is goingat certainly to start to move up the agenda , with how theay elections pan out. i think there will be a question over politics, not just with regards to the wider u.k. we saw in 2014 markets reacted very late. it was treated as a nonevent until weeks before the vote and polls suddenly pointed to a shift, and that we had the big move in sterling. this time we have already seen polls move in favor of independence, so the market is much more villains -- much more vigilant. it could be a source of uncertainty for years to come. of course, the u.k. has to agree on a referendum, and right now
that does not seem to be the case. kailey: a headline just crossing that the u.k. government is pledging an additional 800 million pounds for scotland, wales, and northern ireland, so we will see if we get any more details on that. just want to ask you a question i have posed to multiple guests since we have got news of the outline of this deal. the boe and negative rates. i was talking to steve englander a bit earlier. he said they are probably not likely. adam posen says that may not be the case. where do you fall on the negative rates debate? geoff: it seems that the bank of england is actually moving away we aregative rates, and seeing similar circumstances not only in the u.k., but in news england -- in new zealand. asy moved back away from it well. i think the base case is given a savings led economy, they are aorried you could have
massive shift in liquidity away from the banks. it does more harm than good. goes back to tests for negative rates, they apply more stimulus, looser monetary policy, than they would do negative rates. it has been mentioned. i don't think they are going to go for it. sterlings go back to and the catalysts that are likely to drive it. it is anticipated over the next week, maybe the next two weeks, clearer for the astra/oxford vaccine. i understand the dataset set is now with the regulators, and they are considering what to do next. significantto see a and smooth rollout of a vaccine in the u.k. over the next three months, how much does that change the outlook for u.k. assets? jane: a couple of weeks ago when
we saw the beginning of the rollout, we did see some optimism coming through into u.k. assets. we saw the ftse, we saw sterling will benefit from that. but i think the reality is that it is going to be months before a significant proportion of the population has had a vaccine, and in the meantime, we are going to carry on getting quite bad economic news in q4 and q1 rith the tier fou restrictions. it is very good news that we have a vaccine, but it is very bad news that we are going into q4 and we have this mutated virus that appears to be a lot more spreadable than what we have been used to before. so it is good, but it is not a panacea. kailey: what does that mean for the dollar? the near term outlook isn't looking great. does that mean the dollar can act as a safe haven in the near term, even if longer term there is still a call for weakness? jane: i think that is probably right.
trade is a very overcrowded trade, a little bit like the long equity trade. i think almost inevitably, we will see pullbacks, and i think this week it seems to be the new headed virus in the u.k. that created the trigger. i think we will have other triggers along the way, but the dollar can be softer against the whole basket of other currencies as long as there is this expectation in the market that the fed is going to push down and investors are forced to look for high yields elsewhere, so i think the move is perhaps towards a weaker dollar, but yes, there will be pullbacks. curiosity,ut of where do you think janet yellen is going to sit on a weaker dollar? jane: i don't think she is going to be very vocal about it. i think that's the first thing. to be honest, and a low-inflation ore environment, a weaker dollar is welcome. the u.s. has got a low-inflation
environment, so i think she will be quite happy to see that. i don't think she is going to be vocal about the benefits of a weaker dollar for exports. i don't think she is going to typeany of the trumpian views we have heard along the line. i think the signals that we get from the fed, particularly in the latter part of next year, early part of 2022 about where they are going to go with quantitative easing, those are going to send really important messages, and that is going to be delivered once the fed begins to see sign of reflection in the economy. and -- jane of rabobank james foley of rabobank and geoff yu of bny mellon, thank you. we got the news that an outline on a brexit trade deal has been reached, but no finalization yet. guy: the details are going to be
important here, and also the beicial confirmation may something the market, as jane alluded to, is going to be waiting for. around 50 minutes ago, we got the details of the outline, but i think the devil, as always in these agreements, is in the details. it will be interesting to see what that final agreement looks like, given we have seen over the past few weeks. kailey:kailey: we wait and we watched in the meantime. in the bond market, gilt yields up about 13 points. in the u.s., it is the russell 2000 that is the outperformer, up nearly 1% near a fresh record high. coming up, they will talk stimulus on a blue balance of "balance of
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bloomberg audiences worldwide, this is "balance of power," where the world of politics meets the world of business. when we left yesterday, that stimulus package was a sure thing. today, not so much. president trump released a video saying he was insulted by it was only $600 going to individuals, and we needed to go up to $2000 for individuals, $4000 for couples. want to turn now to political contributor jeanne zaino. the president surprised me. i think may have surprised some other people. he had been sort of quiet. he didn't say he would eat how it, but demanded this -- would veto it, but demanded this were markable increase. jeanne: to see this video released by the president, who has really been absent from negotiations, we haven't really seen him in 10