Yahoo Finance Week ahead: Brexit endgame, Fed and BOE rate meetings, UK retail sales
Investors and global stock markets are gearing up for what is poised to be a whirlwind week, that will see two central bank rate meetings, UK retail sales and unemployment figures and of course Brexit progress.
Britons and the world could finally get an answer to the question that has been plaguing the UK since the referendum in 2016 — deal or no deal?
With just two weeks left till the end of an extraordinary year, this month has so far seen two major economic agreements sealed.
The Organisation of the Petroleum Exporting Countries and its allies (OPEC+) have agreed on output targets for 2021 while the 27 member states of the European Union backed the 2021-2027 budget and recovery fund.
That just leaves Brexit and US fiscal stimulus to round up a busy December, with a positive outcome for both rounding up a tumultuous 2020, but there are doubts about that coming to fruition.
In the background, markets are gauging coronavirus developments, particularly in light of America’s Food and Drugs Administration (FDA) giving the green light to the Pfizer (PFE) and BioNTeach (BNTX) vaccine.
Developments over the weekend:
UK Navy boats on standby to protect waters from EU fishermen in case of no-deal
Climate change: UK taxpayer funds will no longer be used for overseas fossil fuel projects
AstraZeneca to buy US drugmaker Alexion in $39bn immunology deal
Watch: Why is fishing so important in Brexit talks?
UK: Deal or no-deal? Bank of England rate meeting, retail sales, unemployment data
Britain faces one of its busiest weeks as the year nears an end. Top of the list is, of course, Brexit.
Come Monday we should know the outcome of the long-running Brexit drama. Sterling will assumedly buckle under a no-deal scenario.
But the real question is whether the FTSE 100 (^FTSE) will join the pound in drowning its sorrows, or whether their usual antagonist dynamic will apply, with the UK index rising as the currency falls.
Neither the UK or the bloc is willing to quit negotiations, but no-deal Brexit odds significantly increased last week, with odds at 60% and the pound is starting to feel the heat.
Leaders from both sides have warned that it’s highly likely that the pair will not reach an agreement on the key stick points, which are holding up talks. The most important of those areas where “significant differences” remain, are fishing rights and fair business competition rules.
On Saturday, Britain showed its muscles to Brussels. The Ministry of Defence confirmed plans for four Navy vessels to guard British waters from EU fishermen after the end of the transition period on 31 December.
In terms of figures, the unemployment report for October is on Tuesday, with inflation and flash PMIs on Wednesday, the final Bank of England (BOE) rate meeting of 2020 on Thursday, and November retail sales on Friday.
Britain’s economy grew at its slowest monthly pace since May in October and November is expected to be far worse as a result of the second lockdown. Growth of 0.4% left the economy 7.9% smaller than it was pre-pandemic — before the lockdown kicked in.
The outlook for UK unemployment has started to look much bleaker in recent months, in the last three months or so. Since July, unemployment figures have jumped from 4.1% to 4.8% in September, and could continue to increase in the months to come. In the latest spending review, chancellor Rishi Sunak forecast that unemployment could peak in Q2 of 2021 at 7.5%. Sunak said he would put aside £3bn to deliver a new three-year restart program for those longer-term unemployed, to try and get them back into work.
Retail sales have seen six consecutive months of gains since the start of the lockdown in April. But, the surprising 1.2% rise in October could be wiped by the second lockdown in England from 5 November to 2 December and COVID-19 restrictions that are still in place.
Investors will closely watch BOE’s meeting, in what is said will be dictated by what happens with Brexit, something acknowledged by governor Andrew Bailey. BOE has already slashed rates from 0.75% to 0.1% as well as increased its bond buying programme from £435bn ($575bn) to its current level of £875bn, with the last increase of £150bn at the November meeting.
Key company results:
Purplebricks (PURP.L) — half-year (Tuesday)
Dixons Carphone (DC.L) — half-year (Wednesday)
Petrofac (PFC.L) — Q4 (Wednesday)
US: Federal Reserve meeting, electoral college gathering to formalise Joe Biden as president
Markets will also be playing close attention to the Federal Reserve’s policy meeting on Wednesday, with market experts split on whether it will tweak its $80bn monthly bond-buying programme.
The US economy is already strained from the impact of the coronavirus and the second wave, a crippling healthcare system that is bucking under the pressure, a loss of momentum in the US November jobs report and lower consumer confidence amid mounting health worries.
Given this situation, the Fed could retain a dovish bias and continue its emphasis on the need for ongoing fiscal support.
Data wise, import prices and industrial production readings are on the slate for Tuesday as well as the Empire State manufacturing index.
That’s followed on Wednesday by flash manufacturing and services PMIs and the latest retail sales numbers, the unemployment claims number on Thursday.
Finally rounding up the week the updated bank stress test results on Friday.
Outside of the economy and figures, politics wise, the electoral college will gather on Monday and is expected to formalise Joe Biden as president. Focus is likely to remain on the Georgia Senate runoff-races. Democrats need to win both seats to have a split Senate, with vice president-elect Kamala Harris having the tie-breaking vote.
Eurozone: Brexit aftermath, Germany data and flash PMIs
It is a quieter week in the region, but it is likely to be drawn into the aftermath of the Brexit talks. The euro could strengthen in reaction to a no-deal outcome.
Economic releases this week include, industrial production on Monday, flash PMIs on Wednesday, inflation on Thursday and the German IFO Business Climate figure on Friday.
The second wave of COVID-19 across Europe has dampened optimism.
In the most recent November PMIs, the figures painted a mixed picture for the regions biggest economy — Germany, with services slipping further into contraction territory at 46, from 49.5. But, manufacturing remained resilient at 57.8, modestly down from 58.2, and close to levels last seen in March 2018.
France services sector painted a similar but even weaker picture than Germany’s, with a slide to 38.8 in November, and down sharply from the 46.5 in October. Coronavirus restrictions will see restaurants and bars in France remain closed until next year, so it’s hard to picture a recovery any time soon.
Watch: What does a Joe Biden presidency in the US mean for the global economy?
