Caution into risky weekend

Stock markets easing off a little into the end of the week, with most of Asia posting small losses, while Europe is poised to open marginally lower as well.

I'm not sure if I was overly optimistic, a little naive or just caught up in the festive season earlier this week but it seems negotiators on both sides of the Atlantic have decided they can squeeze out a few more days of talks before shaking hands - metaphorically, maybe under the circumstances - on a deal.

What that means is we could be carrying a hefty amount of event risk into the weekend which may explain some of the moves we're seeing on the final trading day of the week. While I remain confident that a US stimulus and Brexit deal will be reached, it's looking a make or break weekend which should make investors nervous.

Senate Majority Leader, Mitch McConnell, earlier this week reportedly prepared lawmakers for a possible vote over the weekend in order to get a deal wrapped up in time for Christmas and, far more importantly, before the cliff-edge at the end of the year. There is a substantial package there that lawmakers on both sides of the aisle are in agreement on so I see no reason why something can't be passed. The fear is it drags into the period between Christmas and New Year, creating heightened uncertainty into year-end.

The European Parliament has sought to ensure that won't be the case with Brexit negotiations, insisting on a Sunday deadline for talks if the two sides wish it to be ratified before the end of the year, when the UK leaves the transition period. There are mechanisms to get around a disastrous no deal, even a temporary one, if they go beyond then but I can't imagine either side has any appetite for that. But then, it is Brexit.

The two sides are closing in on a deal, with fishing remaining the final major hurdle, although some work is still needed on level playing field. A phone call between Boris Johnson and Ursula von der Leyen didn't provide that breakthrough moment that the Prime Minister's meeting with Leo Varadkar did last year but it's clear we're edging ever closer to an agreement.

Johnson is desperate to be taken seriously on his willingness to part without a deal and while the EU appears to accept this, at least publicly, the markets are still having some trouble. The pound remains above 1.35 against the dollar and around 0.9 against the euro, as traders continue to hold their nerve. That may soften going into today's close.

Barring any breakthrough's today, I would be surprised if markets don't see some caution today given the unusual level of weekend risk, particularly on the Brexit side.

BoJ eyes policy rethink and government plans to ramp up spending

Faced with inflation falling at its fastest pace in a decade, the Bank of Japan today committed to assessing the sustainability of its easing policy, wiht the results expected in March. It's not clear at this point what tweaks would be likely but it is clear than something different is warranted after all these years. The central bank also extended its support to pandemic hit businesses by six months, in line with what others have done recently, including the BoE on Thursday.

This comes as the Japanese government seeks to shore up the economy which has suffered this year as a result of Covid-19 and is currently experiencing another dreadful surge. Record spending next year of 106.6 trillion yen will aim to get the economy back on track as vaccines enable us to move into the recovery phase after a horrific 2020.

Oil facing major resistance

Oil prices are easing off a little today after extending gains on Thursday, taking the rebound since early November to more than 40%. It's taken a lot of positive vaccine news including the initial rollout of one - the second won't be far behind - and a new deal on production for next year among OPEC+ to get it to here but it's certainly reaping the rewards.

Crude prices are entering into potentially tricky territory now though, with $49-50 level in WTI having historically been a very important area of support, before turning resistance earlier this year. It also represents something of a psychological barrier which, if overcome, would represent a very bullish move.

Given the near-term risks to the economy from Covid-19 as more and more countries reluctantly embrace lockdown once again, I do wonder whether we may see some profit taking just below this major level in oil. The next month or two could be extremely challenging as the first vaccines are rolled out and lockdowns - perhaps the last - look inevitable in January, at least.

Future bright for gold

The future is looking bright for gold after it added to gains this week, even as the Fed opted against fresh stimulus measures. While the central bank did commit to purchases for longer, which does represent as easing of sorts, it didn't go as far as a number of other central banks over the last couple of month, despite the country going through a grueling wave of Covid-19 at the moment.

Traders seem comfortable with their decision though - aided by their upbeat economic assessment - with the dollar slipping, longer-term yields remaining steady and stock markets back in record territory. This has enabled gold to take a run at $1,900 once more this week and while it failed at the first attempt, I doubt it will be the last. This remains a very accommodative environment and one perfectly suited to the yellow metal.

Bitcoin back to its volatile best

Bitcoin is ending the year on a high after breaking $20,000 for the first time ever on Wednesday. It was clear this was going to be the catalyst for another surge and that's exactly what we've seen, with the crypto surpassing $23,500 within 24 hours of it happening. And I'm not sure it's done there. The next near-term target is $25,000 and there's nothing to suggest we'll have to wait long to see it. Bitcoin really is back to its volatile best and its bringing its peers along for the ride.