Pound rises as Brexit trade deal talks continue – as it happened

Graeme Wearden

from on 2020-12-14 17:49 (#5BM2V)

Rolling coverage of the latest economic and financial news

5.49pm GMT

Right, time to wrap up with a quick summary

Relief that the UK-EU trade talks didn't blow up yesterday means the pound is still stronger tonight, up over a cent at $1.334, and up half a eurocent at 1.0974.

After cheerier mood on Brexit, UK now denying there has been significant progress - govt source says, 'talks remain difficult...we will not sign up to dynamic alignment through the back door', going on to suggest there is 'simply no truth 'in suggestions UK has shifted on fishing

As ever, remember, the number of people that really knows what is going on in the talks is extremely small

But UK tonight clearly doesn't want to add to building expectations that deal might swiftly emerge - the reality is expectations are an important part of the diplomatic dance here

5.21pm GMT

Tens of thousands of hospitality firms in other parts of the country under tier 3 restrictions are already closed, of course, ahead of London's move.

My colleague Rob Davies explains:

In a move described as another nail in the coffin" by the pubs trade body, at least 15,489 venues in the capital, as well as parts of Essex and Hertfordshire, will be moved into tier 3 from Wednesday.

They will join a list of 35,742 that are already effectively closed in areas such as Greater Manchester, Kent, the east Midlands and parts of Yorkshire. The change means more than 53% of English hospitality venues will be unable to offer anything except takeaway and delivery.

4.56pm GMT

After a bright start, the UK stock market lost some of its zip by the close.

The FTSE 100 has ended the day down 14 points or 0.23% at 6531.

Ocado is one of the top performers on the FTSE 100 and that is connected to the fact the London and portions of the south east will endure tougher restrictions from Wednesday.

4.42pm GMT

Nick Mackenzie, CEO at pub chain Greene King, has called for more support for hospitality firms hit by Covid-19 restrictions, as London heads into tier 3.

Pubs in London have had an incredibly difficult time this year. Without workers and tourists, footfall has been exceptionally low, even when restrictions were lifted. Two lockdowns and a long list of restrictive policies have left the hospitality sector in dire straits.

This week would normally be a bumper week for pubs in the capital, instead, many will have to close their doors yet again, despite a significant amount of investment to ensure safe socialising. What we need from the government now is further support to help hospitality businesses get through to the spring, so that can come out the other side of this crisis and play an important role in helping the economy to bounce back."

4.17pm GMT

UK business groups are warning that putting the capital into Tier 3 restrictions over the festive period will have a serious impact on its economy.

It means hospitality businesses such as bars, pubs, cafes, restaurants, and social clubs must shut, apart from for takeaways, as must indoor entertainment venues.

Businesses in London understand that rising infection rates must be controlled, and tougher restrictions are necessary to save lives and protect against longer-term economic scarring.

However, the financial impact of moving London into tier 3 will be stark. Businesses - particularly those in sectors like retail and hospitality - will have been counting on a festive fillip to help mitigate months of hardship, and further restrictions now will come as a devastating blow. Thousands of jobs and livelihoods could be at risk.

This is disappointing news and will be a blow to households and businesses across London.

We urge policymakers to keep the decision under close review, based on the evidence, so that the capital can move back to Tier 2 and gain a semblance of normality as soon as possible.

4.09pm GMT

We mentioned that this week might be volatile... and so it's turning out.

The pound is now dropping back from its earlier highs, and is now up around one cent at $1.332 -- having been two cents up at lunchtime.

BREAKING: The UK has identified a new variant of #coronavirus which might be associated with the fast spread in the southeast of England.

Matt Hancock says this variant is growing "faster than the existing variants".

Live #COVID19 updates https://t.co/SFVeX4rb6x pic.twitter.com/aKnoea2PZG

After announcing a new variant of #coroanvirus is spreading in south England, Health Secretary Matt Hancock announces starting tomorrow, Greater London, south and west of Essex, and South of Hertfordshire into Tier 3 -- highest level of restrictions.

3.35pm GMT

In New York, Wall Street has opened higher thanks to vaccine optimism, stimulus hopes, and some relief that the Brexit talks didn't blow up yesterday.

Stocks are close to last week's record highs, after the coronavirus vaccine developed by Pfizer and BioNTech got approval from the US Food and Drug Administration on Saturday.

3.14pm GMT

Credit ratings firm S&P Global has warned the UK's credit rating could be hit if its economy suffers the economic shock of a no-deal Brexit.

In a research note today, S&P predicted that Britain's economic recovery would suffer if companies lost access to European markets for a prolonged period'. This could undermining the country's attractiveness to investors, and put the credit rating under downward pressure'.

Our sovereign ratings on the UK assume the U.K. and the EU will reach a basic agreement at the end of the transition period. A no-deal scenario would have important implications for the U.K. economy, the country's ability to attract inflows of capital and labour over time, and its public and external finances, in our opinion.

Our sovereign ratings on the U.K. could come under downward pressure if the economic recovery is significantly weaker than we anticipate, making fiscal consolidation more challenging. This could happen, for instance, if merchandise and services exports from the U.K. lose access to key European markets for a prolonged period.

Typically over $100 billion (about 4% of GDP), the U.K.'s current account deficit is the second largest in the world, in absolute terms, after that of the US.

Any reduction in the appetite of non-residents to finance this deficit, or to roll over the U.K. private sector's elevated stock of short-term external debt, would also weigh on the U.K.'s growth prospects.

2.15pm GMT

After a thoroughly dreadful year, Britain's pub industry fears that takings could fall as much as 90% this month -- meaning some locals might close for good.

December is typically the most lucrative month of the year for the UK's ailing pub sector, accounting for as much as a quarter of annual profit, thanks to Christmas parties and New Year's Eve festivities.

However, the British Beer and Pub Association (BBPA) said its forecasts showed pubs would sell 270m fewer pints than usual over the period, with only one in five of the UK's 47,200 pubs expected to be open.

1.21pm GMT

Hopefully the Brexit negotiations aren't running over Google today, as the tech giant reels from a worldwide outage that knocked several core services offline.

So if you've been unable to access Gmail, Google Calendar, YouTube and Google Classroom in the last hour or so, that's why....

Beginning at about 11.50am GMT, the outages appeared to have affected the vast majority of Google's services, apart from search which operated largely unaffected.

Despite the universal nature of the outages, the company's automated systems reported no problems for any services for the first 30 minutes of the outage, across both consumer-facing and its cloud tools for developers. At 12.25pm, the company published an update, saying We're aware of a problem ... affecting a majority of users. The affected users are unable to access [Google services]."

1.07pm GMT

This chart from XM shows how the pound has performed strongly against both the dollar and the euro today:

Following the disastrous dinner last week between Johnson and von der Leyen that had raised the spectre of an imminent collapse in the talks, sending cable crashing by more than 250 pips [2.5 cents], the two leaders pledged on Sunday to go the extra mile" to find a solution for the remaining sticking points in the negotiations.

But although the talks were always going to stretch into the 11^th hour, the stakes are high on both sides in terms of compromising on their respective red lines. So even at this point where time is running short and there seems to be a strong desire to get an agreement, it's becoming more and more plausible that a trade deal may only be feasible after the transition period ends on December 31.

1.03pm GMT

Here's the latest from our Brussels bureau chief, Daniel Boffey,

A post-Brexit trade and security deal could be sealed as early as this week after Boris Johnson made a key concession over the weekend, the EU's chief negotiator, Michel Barnier, has told the bloc's ambassadors in Brussels.

Barnier said the prime minister's acceptance of the need for a treaty-level mechanism to ensure fair competition as regulatory standards diverge over time had unlocked the talks. His comments came despite suggestions from Downing Street that a no-deal exit remains likely.

12.52pm GMT

After a strong morning, the pound is currently on track for its best day since October... and it could yet be the best since the March market chaos.

Sterling is currently up nearly two cents against the dollar at $1.342.

A likely Brexit agreement is likely to support a rapid pound bounce.

Markets are already discounting an agreement, even if delayed. pic.twitter.com/MkBTzySB4M

11.03am GMT

Bloomberg's Francine Lacqua tweets:

Positioning in British pound futures has flipped from short to long for the first time in three months as talks between the U.K. and the European Union entered a critical phase. Here it is pic.twitter.com/DLyJizFHdv

10.30am GMT

Michel Barnier has tweeted that the next few days are important' if a deal is to be reached in time, and that fisheries and the level playing field remain the key obstacles.

It is our responsibility to give the talks every chance of success.

Never before has such a comprehensive agreement (trade, energy, fisheries,transport, police & judicial cooperation, etc) been negotiated so transparently and in such little time. [1/2]

The next few days are important, if a is to be in place on 1 January 2021.

Fair competition, and a sustainable solution for our fishermen and women, are key to reaching a deal. [2/2]

9.56am GMT

Codemasters, the UK software developer behind the successful F1 and Dirt racing games, knows all about close battles, clashes and last-minute victories (no, this isn't about Brexit...).

Codemasters is one of the oldest British video game studios and was founded by the brothers Richard and David Darling in Southam in Warwickshire in October 1986. The then schoolboys started a Spectrum games company from home, and had a big hit with Richard's BMX Simulator on the Commodore 64. The brothers sold their last remaining stake in 2007.

There has been a flurry of dealmaking this year in the gaming industry, including Microsoft's $7.5bn acquisition of ZeniMax in September. Satya Nadella, the chief executive of the tech giant, which makes Xbox consoles, has described gaming as the most expansive category in the entertainment industry".

9.32am GMT

Away from Brexit.... the UK government has also restarted talks with EDF on its plan to build a nuclear reactor at Sizewell C in Suffolk, and may take a direct financial stake in its construction.

The latest round of negotiations over the 20bn nuclear reactor will focus on whether EDF can prove that it has learned lessons from the Hinkley Point nuclear project, and that a successor plant would offer the public value for money.

9.18am GMT

Paul O'Connor, head of multi-asset at Janus Henderson Investors, says a UK-EU trade deal now looks to be the most probable outcome' - though it's not clear when!

With no new deadline having been arranged and no scheduled key events to focus on, it is far from clear when the next meaningful news will appear.

While it seems rational that jaded negotiators will aim to get talks wrapped up by Christmas, it is also possible that both sides agree on a temporary extension of the transition period beyond the 31 December deadline.

In the short term, that will involve significant economic disruptions. In the medium term, it will involve sizeable economic costs.

Deal or no deal, the UK economy looks set for a difficult start to 2021, given Brexit-related frictions and continued coronavirus restrictions.

8.58am GMT

The news that Michel Barnier thinks an agreement is still possible has pushed the pound over the $1.34 mark for the first time since Wednesday night, extending today's rally:

While it remains too early to predict that the Brexit clouds are clearing, it [the extension to negotiations] nonetheless keeps the hopes of the optimists alive that a potentially chaotic no-deal outcome may yet be avoided."

8.49am GMT

The domestically-focused FTSE 250 share index, which contains medium-sized companies, has jumped around 1.2% in early trading.

Last Friday, Morgan Stanley predicted that the index could plunge by up to 10% if a UK-EU trade deal wasn't agreed, so the latest extension to negotiations is helping sentiment.

8.20am GMT

Shares in UK banks and housebuilders have jumped at the start of trading, on relief that that Britain and the EU are still negotiating.

Construction firms Barratt Development, Persimmon and Taylor Wimpey are among the top risers, up over 5% each.

8.08am GMT

Reuters reports that Michel Barnier has said an agreement is still possible", as he arrived to brief EU envoys.

The European Union's Brexit negotiator, Michel Barnier, said on Monday sealing a new trade pact with Britain was still possible as negotiators sought to break deadlocks on access to UK fishing waters for EU vessels and corporate economic fair play rules.

Britain and the EU agreed on Sunday to go the extra mile" in coming days to try to reach an elusive trade agreement despite missing their latest deadline to avert a turbulent split in trading ties at the end of the month.

The end will be when we reach an agreement both on fair and free competition and second on the reciprocal access to waters."

EU Chief Brexit Negotiator, @MichelBarnier speaks to Sky's @adamparsons as talks continue for a post-Brexit trade deal.https://t.co/JY8OVayjOJ pic.twitter.com/9thZcRzFdO

7.52am GMT

Mohit Kumar, managing director of interest rate strategy at Jefferies, reckons the negotiations could go right to the end of the year (and possibly longer).

At this juncture, we see a 50/50 probability of a deal as both parties would want a deal, but significant differences remain.

Our base case is that we will get some version of a fudge deal with a transition period, suggesting that negotiations could continue in 2021 as well. In terms of deadline, the realistic deadline for any agreement would be the 31^st December.

7.49am GMT

City traders are pinning their hopes on a last-minute Brexit deal, reports Naeem Aslam of Avatrade:

Looking at the Brexit negotiation history, there is always a deal, but it happens at the last minute, and this is what traders are expecting next time as well.

The Sterling-dollar pair is holding on to its gains, and the door is open for the currency pair to touch the $1.35 mark.

7.47am GMT

This morning's rally has pushed the pound back to its highest levels since Wednesday night.

As this chart shows, it fell on Thursday and Friday after Boris Johnson and Ursula von der Leyen's Brussels dinner meeting failed to deliver a breakthrough, but has bounced after trade talks were extended again.

7.28am GMT

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

It's the last full week before Christmas, a time for planning and to-do lists. And for the UK and the EU, that still includes getting a Brexit deal done.

The pound is enjoying a bit of a relief rally at the start of this week. Relief, it seems, at not suffering a horrific plunge as the two sides call it quits on the talks and proceed on WTO terms.

That may still come to pass. But as long as the two sides are talking, there remains the belief that common sense will prevail and a deal will be reached that avoids the cliff edge on January 1st. I expect volatility will remain rather heightened in the coming days.

British Pound Jumps as UK, EU Opt to Extend Brexit Negotiations - https://t.co/f0Yi3lFf0z #Brexit #GBPUSD pic.twitter.com/u6aXjr0Ocv

presumably New Year's Eve 2020 but I wouldn't count on it pic.twitter.com/cz2h2lh8oI

European Opening Calls:#FTSE 6556 +0.15%#DAX 13183 +0.52%#CAC 5544 +0.66%#AEX 618 +0.57%#MIB 21854 +0.70%#IBEX 8116 +0.65%#OMX 1904 +0.68%#STOXX 3509 +0.66%#IGOpeningCall

One bill will be a $748 billion proposal, which includes money for small business loans, jobless benefits and vaccine distribution -- among other matters.

The other: A package that includes $160 billion for state and local aid that includes liability protections for businesses and other entities -- the two biggest sticking points.

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