Pound volatility jumps ahead of crunch Brexit talks – as it happened

Graeme Wearden

from on 2020-12-09 18:15 (#5BDQM)

Rolling coverage of the latest economic and financial news

6.15pm GMT

The pound has now dropped back to its opening levels against the US dollar, but is still higher against the euro tonight.

6.14pm GMT

Back in the US stock markets, food delivery service DoorDash has made a spectacular debut.

Shares in DoorDash have surged almost 80% after it floated today. The stock was priced at $102, but has rocketed over $180 in early trading as traders try to grab a piece of a company which has done well in the pandemic.

The massive first-day jump -- which could be the third biggest this year in an already white-hot IPO market -- gives DoorDash a fully diluted value of about $68.4 billion. That includes outstanding shares, employee stock options and restricted stock units detailed in its filings.

With a current market capitalization of about $58 billion -- excluding those additional shares -- DoorDash is bigger than companies including Kraft Heinz Co., Lululemon Athletica Inc. and Ford Motor Co."

#DoorDash dashes higher on #IPO day @NYSE Priced at $102 $DASH stock opens at $182, right now up $81.50 to $183.53 @KNX1070 @MottekOnMoney #SiliconValley #California #economy #coronavirus

TOTALLY CRAZY: DoorDash almost doubles IPO value w/huge trading debut jump. Food delivery company reaches more than $68bn valuation. First-day pop makes company bigger than Lululemon, Ford Motor. pic.twitter.com/XvfQGIKWKO

6.03pm GMT

Time for one more chart! Professor Costas Milas of University of Liverpool has shown how political uncertainty is bad for the pound.

There is a negative (albeit not very strong) correlation (equal to -0.34).

Uncertainty has spiked during the Brexit Referendum and immediately afterwards therefore hammering sterling (which lost up to 13% relative to its 4-year rolling average).

5.46pm GMT

The opposition Labour Party has criticised the UK government's decision to suspend retaliatory tariffs against the US in the Boeing-Airbus dispute.

Whatever long-term hopes of a US trade deal may lie behind this announcement, and whatever the truth about the legal advice the government has received, the immediate facts and consequences are clear.

Liz Truss is unilaterally capitulating in a dispute caused in part by unlawful US subsidies, even while those subsidies are - in the words of her own statement - continuing to cause significant harm to Airbus, a vital business and employer for our country.

its intriguing that just hours before the UK and the EU meet to discuss Brexit in Brussels that the UK has tabled a willingness to break ranks with the EU and the 3billion of tariffs imposed on American products."

He added: The UK are making it very clear to the Americans that they wish to drop the tariffs imposed on the United States as soon as they can and come to a trading arrangement as soon as possible."

5.03pm GMT

Jams at ports and problems in the global shipping industry have caused the cost of shipping goods to the UK to soar in the run-up to Christmas, my colleague Jasper Jolly reports:

Executives in freight services companies said they have seen prices for containers from mainland China triple or even quadruple in the course of a few months.

4.54pm GMT

David Madden of CMC Markets says trade uncertainty is still hanging over European markets tonight, ahead of tonight's dinner in Brussels.

The future trading relationship between the UK and the EU remains in focus and even though the situation is not looking overly optimistic at the moment, stock markets in Europe are a little higher.

The British Prime Minister, Boris Johnson, will have dinner this evening with Ursula von der Leyen, the President of the EU Commission, and that has been the talk of the town today. The individuals haven't sat down yet and already there has been chatter that a deal is not expected to be announced at tomorrow's EU summit. Yesterday, the UK removed the controversial components from the internal markets bill and that was received well by politicians and traders as it should help greatly with potential problems with respect to Northern Ireland. That being said, the Irish government is not too hopeful of a deal being secured, and the French hold a similar position.

4.52pm GMT

European stock markets have also closed, with a rather mixed performance.

Although Germany's DAX gained 0.5%, France's CAC dropped by 0.25% and Italy's FTSE MIB lost 0.4%.

4.50pm GMT

After hitting a nine-month high this morning, the FTSE 100 index has dipped back and closed just 5 points higher at 6564.

Takeaway firm Just Eat was the top riser, gaining 7%. Earlier today it outlined plans to create a new agency worker model for couriers, giving 1,000 UK workers benefits including hourly wages, sick pay and pension contribution.

4.28pm GMT

America's stocks of crude oil have jumped unexpectedly, knocking the oil price down.

Crude inventories rose by 15.2 million barrels in the week to 2nd December, up to 503.2m barrels. Analysts had expected a small drop, of around 1.4m barrels.

U.S. crude oil stocks last week jumped 15.2 mln barrels, their biggest rise since April. Analysts thought there would be a slight reduction.

Weekly crude exports fell by 1.6M BPD, the biggest drop on record. Actual exports (1.8M BPD) were the lightest since Oct. 2018. pic.twitter.com/mU7XvbgD3y

OIL MARKET: Monster oil stock build in the US last week, particularly for crude. Imports sharply up w-on-w (>1m b/d) and exports down w-on-w by .1.6m b/d) explain the big increase in crude stocks. Demand, although weaker, is holding up when looking at 4wk average | #OOTT

#US Crude stocks with a big build helping futures fall pretty hard! Almost 90 cents in about 10 mins#EIA #API #Inventories #Oil #OOTT pic.twitter.com/QpKqVqqSlo

4.11pm GMT

Over in a cold, quiet Brussels itself, there's little interest in tonight's crunch dinner among the locals.

Indeed, they sound rather weary of the whole Brexit saga (and who can blame them?), as my colleague Jon Henley reports, chillily:

It may have been billed as the dinner that will decide the fate of Brexit, but on the half-frozen and almost wholly deserted streets of Brussels' windswept European quarter there were few who seemed to know, and even fewer who cared.

Are they really?" asked Emma Delprez, 37, a PR consultant, informed that the British prime minister, Boris Johnson, and Ursula von der Leyen, the European commission president, were due to meet later in a do-or-die attempt to break the impasse.

So it's bloody cold here, and no one on the streets can be arsed with Brexit any more https://t.co/VxebY5n7eI

4.07pm GMT

The number of job openings in America has risen - as the pace of hiring slows, and more people are laid off off.

The US labor department's JOLTS survey shows there were 6.652 million vacancies at the end of October, up from 6.49m a month earlier. That would typically be a sign of an improving jobs market....

Nice surprise for October JOLTS job openings ... up to 6.652M vs. 6.3M est. & 6.494M in prior month (rev up) ... pace of hiring 4.1% vs. 4.2% prior; quit rate unchanged at 2.2%, separations 3.6% vs. 3.4% prior; layoffs/discharges 1.2% vs. 1% prior pic.twitter.com/u6AdD4NOdn

With job openings on the rise, the number of unemployed should continue to drop over time. #JOLTS pic.twitter.com/LHlOije2aH

3.51pm GMT

Back in the US, the number of mortgage applications has dropped for the second week running.

Applications fell 1.2% last week, following a 0.6% decline in the previous seven days. That may indicate that the Covid-19 pandemic and the lack of a new stimulus package is weighing on demand, as the holiday season approaches.

US

|| MBA Mortgage Applications (W/w) ||
-1.2% (Actual)
-0.6% (Previous)

|| MBA 30-Year Mortgage Rate ||
2.90% (Actual)
2.92% (Previous)

3.16pm GMT

Investors are bracing for the value of the pound to swing wildly, depending on the results of tonight's meeting between Boris Johnson and Ursula Von Der Leyen.

The overnight sterling implied volatility gauge (a measure of how much protection investors are taking against sharp moves in the pound) has jumped to its highest level in over eight months.

U.K. Prime Minister Boris Johnson is set to meet with EU commission head Ursula Von Der Leyen this evening for dinner in Brussels in an effort to move forward the stuck Brexit negotiations. The critical outstanding issue is the level playing field" or state aid" issue. While we have assumed all along that some sort of a deal would inevitably be hashed out between the two sides, even if it was a rather thin deal that disguises the need for ongoing negotiations on particulars based on a loose framework of principles. But the latest turn in negotiations has raised the fear of a proper stand-off that brings with it a cliff-edge risk into year end. I still suspect some sort of fudge, or at worst, delay is more likely than a cliff edge, but we should all respect the uncertainty of the situation.

The market is certainly respecting the uncertainty more than is shown in the choppy action in the spot GBP exchange rates, as GBPUSD 1-month implied volatility has pulled higher toward 13% and the 10-delta options are 5.5% more expensive for puts than calls - getting close to where they were during the pandemic meltdown, for perspective.

2.56pm GMT

On Wall Street, the Dow Jones Industrial Average and the S&P 500 index have both hit record highs at the start of trading.

Hopes of a US stimulus bill seem to be driving shares up, after the White House proposed a $916bn deal overnight (although this hasn't broken the deadlock yet).

U.S. markets open higher https://t.co/CILfrULF9p pic.twitter.com/f86AoMcPO1

2.43pm GMT

Back in the financial markets, the pound is still choppy as investors wait for tonight's dinner in Brussels.

Sterling climbed more than a cent by this lunchtime to $1.3477, a new high for the week.

Our friends in the EU are currently insisting that if they pass a new law in future with which we in this country do not comply or don't follow suit, then they want the automatic right to punish us and to retaliate.

And secondly they're saying the UK should be the only country in the world not to have sovereign control over its fishing waters. I don't believe that those are terms that any prime minister of this country should accept."

The Brexit negotiations seem to be very close if you believe Michael Gove, and Boris and Von der Leyen are having dinner this evening as they try to get to a conclusion on this front.

2.05pm GMT

Exporters are also reporting that the cost of pallets has jumped, as they need to be heat-treated or cleaned to meet EU import standards, reports the FT's Peter Foster:

In other happy #Brexit news. Spoke to a small exporter (Organic teas) who said been told cost per pallet gone from 6 to 16 because of ISPM15 requirement. https://t.co/xYedl0ZlQR

1.56pm GMT

Speaking of the ports... Kent Online points out that temporary traffic management has been introduced on the route to Dover, to handle the high volumes of lorries.

They say:

Kent's roads once again are beginning to resemble a lorry park as drivers queue to access the Port of Dover and Eurotunnel.

Dover TAP, short for Traffic Access Protocol, was implemented on the coastbound A20 at Aycliffe due to high volumes of freight heading towards the port yesterday for the fourth time in two weeks and is once again in place today.

Big delays once again at #Dover and on the #M20 for the Eurotunnel as lorries try to cross Channel...https://t.co/iqaBVBI4Sk pic.twitter.com/FeWYecjBf9

UPDATE: There are long queues of lorries on the #M20 coast bound as they wait to cross the Channel. The slip roads at J11 for #Hythe are closed and Dover TAP is in force on the #A20 #kmfmtravel https://t.co/Rm8yhMvczi pic.twitter.com/hs0eafalu7

FREIGHT: #PortofDover is busy, please use #DoverTAP left lane of the #A20 to the port

1.22pm GMT

Escalating problems at UK ports are likely to drive up costs for consumers, experts are warning, whether a Brexit free trade deal is reached or not.

Practical arrangements for getting goods in and out of the UK are usually invisible, because they normally work. The current delays in containerised imports, and the price increases that come with that , brings home that you cannot take it for granted. There is limited resilience in the supply chain. That resilience is being tested by the impact of Covid-19, and is going to be further tested by Brexit, especially as with 3 weeks to go we do not know what Brexit looks like.

Whatever the deal struck on Brexit delays at the border and increased costs will be inevitable, at a time when the economy is already weakened.

On top of skyrocketing shipping rates, carriers are adding congestion charges for imports to Felixstowe and Southampton, because of severe delays.

The logistics industry has written to the Department for Transport calling for it to help clear port backlogs.

12.13pm GMT

Property news: The riverside 1960s building currently occupied by failed department store chain Debenhams in Guildford, Surrey, has been sold for 20m to investment and development company Native Land.

The 233,700 square foot (22,000 square metre) building, located on 1.4 acres next to the River Wey in the affluent commuter town, was put up for sale by M&G Real Estate at the start of the year for a guide price of 20m, billing it as a unique property development".

From the 1960s, George Baines & Syborn's Plummers (now Debenhams) department store in Guildford. It's a big beast next to the River Wey, but I have always thought it fits in quite well (or at least the corner on the river does). I guess its future is somewhat uncertain... pic.twitter.com/SE98li4fYu

Also in this story: Debenhams in Guildford has been sold to a luxury residential developer, in the latest sign of the changing composition of Britain's high streets pic.twitter.com/eyumxuFopx

11.59am GMT

The UK has abandoned EU tariffs on the plane manufacturer Boeing in the hope of securing a quick post-Brexit trade deal with the US.

The UK's move puts it at odds with the EU, which imposed retaliatory tariffs on US imports worth $4bn (3bn) after the World Trade Organization (WTO) ruled that the US had given illegal state aid to Boeing, its aerospace champion.

10.52am GMT

Our Politics Live blog flags up that Michael Gove has played down the prospect of te Brexit trade deal being finalised at tonight's Brussels dinner.

EU officials have also been stressing that Boris Johnson and Ursula Von Der Leyen will look for a reason to move forward hopefully", rather than actually agreeing a deal over pudding.

I'm hopeful that the prime minister will be able to lay out, over the course of dinner, where movement is required. The conversation between the prime minister and the president tonight, I hope, will create further political momentum, which will make sure that we do reach an agreement.

It's clear that some political impetus will be required for the talks to make any more progress. If we can make progress at a political level it may allow Lord Frost and his team to resume negotiations over the coming days. But we must be realistic that an agreement may not be possible as we will not compromise on reclaiming UK sovereignty.

10.00am GMT

The pound is continuing to climb, now up almost a cent against the US dollar today at $1.345.

That's its highest level this week, since worries about the UK and EU would fail to reach a trade deal began to rise.

Ultimately it takes a little bit of politics at the end and both sides to move a little bit at the end. But I think that is possible,"

Is (British Prime Minister) Boris Johnson willing to make concessions in those areas? I think he probably is...I think his natural instincts are actually much closer to the more liberal London mayor that he was than the more conservative Brexiteer."

9.46am GMT

UBS Global Wealth Management reckon that the London stock market should perform well in 2021, whether a Brexit deal is reached or not.

Dean Turner, Chief Eurozone & UK Economist, and Caroline Simmons, UK Chief Investment Officer, say:

On the whole, we see value in UK assets, especially in UK stocks. The UK is currently our most preferred equity region, benefiting from a relatively high exposure to stocks and sectors that have so far lagged the recovery.

Even in a no-deal Brexit scenario, we expect UK stocks to perform well."

9.38am GMT

The FTSE 100 has now hit its highest level since early March, gaining nearly 1% to 6623 points (before dipping back a little).

Brexit deal hopes, vaccine optimism and US stimulus talks are all helping the market rally, although the Footsie is still down around 13% for the year.

9.24am GMT

European stock markets have also opened higher, pushing the Stoxx 600 index to its highest level since February.

Germany's DAX is up 1% - and in positive territory for the year -- while France's CAC is 0.6% to the good.

A potential deal is coming down to the wire as 12 million Americans are set to lose their unemployment benefits the day after Christmas.

Eviction moratoriums for renters and protections for student borrowers are also set to expire, as well as a federal program for paid family leave.

9.11am GMT

While all eyes are on Brexit today, vaccines are still the magic wand" lifting investor confidence, says Neil Wilson of Markets.com.

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.

9.05am GMT

Vaccine optimism is also lifting shares in London this morning.

IAG (which owns British Airways) is up 5% and Rolls-Royce (which makes and services jet engines) gaining 3.5%.

The US health regulator noted no concerns on the Pfizer/BioNTech vaccine, while Johnson & Johnson threw its hat into the ring, announcing that it could obtain late-stage trial results for its vaccine in January.

Alongside a roll out which has now begun in the UK, expectations are increasing for a relatively early solution to the human and economic problems which the pandemic has caused.

VACCINE WORKS WITHIN 10 DAYS: New FDA analysis of the Pfizer/BioNTech vaccine shows the immunity protection of the #COVID19 vaccine kicks in **starting on day 10** after first dose, and continues to protect from there. Astounding!! https://t.co/zU4j0utcpu pic.twitter.com/lP5VAvZo03

8.58am GMT

Shares in UK housebuilders are up this morning, reflecting optimism that a disruptive no-deal can be avoided.

Taylor Wimpey (+2.7%) and Berkeley Group (+2.7%) are among the FTSE 100 risers.

8.52am GMT

The pound is also up against the euro this morning, gaining 0.2% to 1.105.

Britain sees scope for a compromise on fishing in Brexit trade negotiations, one of Prime Minister Boris Johnson's most senior Brexit-supporting ministers said on Wednesday.

I think there can be scope for compromise but the compromise exists on the way in which European boats can continue to access UK waters," Chancellor of the Duchy of Lancaster Michael Gove told BBC radio.

8.36am GMT

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

It's crunch time for the UK-EU Brexit talks. And stocks and the pound are both moving a little higher this morning on hopes that Boris Johnson an Ursula von der Leyen can hammer out a breakthrough at their dinner in Brussel tonight.

There is a smoother glide path towards a possible deal....

I hope that we will secure a free trade agreement.

Essentially, the UK and EU have been in parallel negotiations over both a trade deal, which has been more in focus lately, and the implementation of the 2019 treaty over the Withdrawal Agreement and Irish Protocol to avoid a hard border with Norther Ireland.

It's this second negotiation that has now been ostensibly resolved, potentially paving the way for a broader trade deal in the days to come.

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