Sterling drops as UK & EU move forward

Chris Beauchamp IG

Heading into the close, the FTSE 100 is 20 points higher, while US stocks are in robust form once more.

- Republicans need to crack on with tax deal
- Markets still expect agreement before year-end
- UK & Europe move on to the next phase

The ‘will they, won’t they’ of tax cuts goes on in Washington, providing some drama on an otherwise quiet day for markets. After the excitement of the Fed, BoE and ECB meetings, today’s session has been somewhat lacking, although once again a recovery in equities reminds everyone that the path of least resistance for markets is still higher. While US futures struggled to find their feet before the open, doubts have been cast aside quickly, with the Dow adding 100 points in the first two hours of trading. With the Republican margin of safety cut as a result of the defeat in Alabama, investors will be wondering whether the administration will cede ground in key areas in order to keep the waverers on side. A few full days of trading are left before Christmas, so we can expect volume to start drying up, with the big participants looking to close out their books in good time to protect gains.

The UK and Europe wrapped up phase 1 talks in Brussels, with the way to phase 2 now clear. However once again the ‘sell the fact’ play is in evidence in cable, with sterling dropping sharply against the dollar. The FTSE’s underperformance versus its peers this year thanks to a stronger pound is, however, likely to continue, as the two sides continue to push through the talks. We can expect more late night talks and fraught last-minute deals, but the playbook appears set.

Author

Chris Beauchamp

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