Brexit fears ease, helping to lift UK assets

Gains for the pound and FTSE 350 highlight optimism following a weekend decision to continue Brexit talks. While Q1 is likely to see weakness for house prices, Rightmove forecasts point towards another positive year for housebuilders 

• UK stocks on the rise.

• Banks outperform on faint hope of a Brexit deal.

• Housebuilders on the rise, with Rightmove signalling potential 4% house price growth in 2021.

The pound and FTSE 250 are enjoying a welcome boost in early trade, with traders reaching for UK-related markets amid tones of slight optimism that weekend talks provided a narrow opportunity for a trade deal. Fears that the Sunday deadline for negotiations could lead to a decision to abandon talks altogether have been allayed for now. With less than three-weeks left until the UK leaves the EU, brinksmanship is going to have to move aside in favour of compromise if a deal is going to pass before year-end. From a traders perspective, the prospect of a potential breakthrough does provide some floor for the pound for the time being. The FTSE 250 outperformance seen in early trade is largely a reversal of the declines seen in the lead up to this crucial round of negotiations. With banks in particular doing well, it is evident that we will see assets with high UK-exposure all move in tandem as markets gauge exactly what kind of Brexit we will see come 1 January. 

The housebuilders are on the rise in early trade, with Rightmove allaying fears of a rocky 2021 in  projecting a 4% rise for the year. With December house prices falling 0.6%, we are already getting an insight of what could be to come in the months ahead. The double-whammy of Brexit and the expiry of Rishi Sunak’s stamp duty holiday will likely drive down demand for properties in Q1. Nevertheless, with housebuilders building substantial cash piles over the course of 2020, investors are looking beyond Q1 to what could be another positive year once the fears of Brexit are overcome.   

Ahead of the open we expect the Dow Jones to open 190 points higher, at 30,236.