Brexit heads to conclusion, European shares bounce after Wall St records

All eyes are on the Brexit talks as they reach the denouement of what’s been an over-long episode featuring as many twists and turns as an Agatha Christie mystery. Heading to Brussels today, Boris Johnson, a rather puffed-up Ustinov in the role of Poirot, is gathering the players for the final reveal: what is Britain willing to do to turn this insoluble mess into a constructive deal? Will the EU, faced with this revelation, say ‘alright gov, it’s a fair cop’ and give way too?

The government’s decision to ditch controversial clauses in the internal market bill may be an olive branch, but it does not solve the key hurdles on fishing etc. Sterling traded higher on some positive noises from Michael Gove early this morning, as he said there is room for compromise on fishing and that the UK could be ‘generous’ on who enters its waters. GBPUSD pushed back above 1.34 on the headlines but remains on the hook for less confident-sounding updates. The EU Council meeting begins tomorrow and really the bloc would prefer to focus on things like its budget and the pandemic, as well as future ties with the US.

Chart: GBPUSD trades higher above 1.34, resistance at 1.3540.

GBP is stronger on potential positive Brexit news.

A positive session on Wall Street set the tone for a firmer open for European bourses even as the clouds of Brexit cast a pall over the market and lawmakers in the US struggle to find agreement over much-need fiscal stimulus. The Dow Jones rallied over 100pts, or 0.4%, to close at 30,173.88, achieving an intraday high of 30,246.22 in the process. The S&P 500 rose 0.3% to 3,702.25 to close above 3,700 for the first time. Tesla shares rose again despite announcing another $5bn share sale. More cash for capital expenditure is viewed as a positive despite the dilution. In early trade on Wednesday, the FTSE 100 rallied almost 1% to above 6,660 to set another fresh post-pandemic high.

Vaccines are still the magic wand: As the UK’s vaccination programme begins, the Oxford University and AstraZeneca vaccine has been confirmed as being safe and effective in a Lancet study. The news further underpinned confidence in the reopening trade. Meanwhile the FDA has confirmed the efficacy and safety of the Pfizer/BioNTech vaccine, clearing the way for its imminent approval for use in the US.

Getting Washington to agree a stimulus package is appearing as intractable as Brexit. The latest offer from the White House is a $916bn package that has the support of Senate majority leader Mitch McConnel but was rejected by Democrat leaders in Congress who bemoaned the lack of enhanced unemployment benefits. A bipartisan package worth $908bn is still on the table.

British American Tobacco shares failed to rally despite a positive update and upgrade to full-year forecasts. Constant currency revenue growth is now seen at the upper end of the 1-3% range, with the US now expected to be flat versus previous guidance of -2.5%. Global sales seen at -5% vs -7% previously thanks to the sales ban in South Africa being lifted sooner than expected, whilst volumes held up well in developed markets and grew in emerging markets. Lockdowns have not been the ideal backdrop for smokers to kick the habit – many are even taking it up again. Combustibles delivered an ‘excellent’ performance, management said today.

Howdens shares leapt 8% after the company said FY2020 profits would be 10% above the top end of expectations, currently in the range of £123m to £152m. This implies profits of about £167m and comes after a very strong performance in November, with revenues up almost 19%.

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