Vaccine euphoria has delivered strong gains to stock markets over the last month but they appear to be running on fumes as the run up to the holiday's begins.

So much positivity priced into these markets but there's still plenty that could deliver the famed Santa rally we all crave. As we saw in the UK yesterday, regulatory approval paving the way for distribution of the vaccines gave the FTSE a leg higher as another potential hurdle was overcome. The same should soon follow for other vaccines in the UK and around the world over the next couple of week.

With lawmakers on Capitol Hill back in deal making mode, intense negotiations will now get underway in the hope that a relief package can finally be passed and provide much needed support to businesses and households across the country. While any deal will likely be much smaller than Democrats would like, the important thing is to get something agreed before the end of the year.

With Congress also having to agree a funding bill to avert a partial government shutdown by 11 December, the best chance of a deal may be alongside one another. It won't be perfect but it will see the country through to the new administration, at which point more talks can commence, if needed.

The fact that the Democrats are willing to use a bipartisan proposal, amounting to $908 billion, as a starting position is a significant compromise that could be a promising launch point for negotiations. This is a massive concession from the $2.4 trillion package it had been targeting and may reflect its belief that it will stand more chance of passing something more sunstantial after January 20th.

Leader of the Senate, Mitch McConnell, has been less open to the bipartisan proposal but is keen to tie any stimulus to the funding bill. While some are enthused by the desire on both sides to get something done before the holiday's, I'm not quite there. The differences remain significant and McConnell may feel amboldened after the election, with the run-off in two Georgia seats still to be decided, which will determine whether Republicans hold the Senate.

PMIs highlight lockdown damage to services industry

Services and composite PMIs from across Europe this morning leave much to be desired, with lockdowns across the region once again decimating businesses at a critical time of year. And any reopenings aren't going to dramatically improve conditions for many of these, with the restrictions that will remain in place on them likely carrying on into the new year.

It's all about just staying alive for many firms in the hospitality, retail and tourism industries and the latest lockdowns make life so much harder. And with the services industry being a driving force of most economies, it doesn't bode well for growth in the fourth quarter, regardless of the performance of their manufacturing industries.

Brexit nerves creeping in

Brexit talks are ongoing and yesterday we saw the first sign of nerves creeping in. Volatility in the pound is likely to pick up from here, with the currency falling more than 1% against the dollar after Barnier's comments. We're seeing more and more public commentary coming from the talks which may reflect increasing frustrations, or final attemptes to draw concessions against the threat of no deal.

While the confidence in the markets continues to surprise me, I do remain confident that talks won't collapse this late in the day given the issues that remain. It would be a huge failure on all sides to choose no deal over compromise at this point and I am optimistic that common sense will prevail. They're just leaving final compromises until a minute to midnight. It's just not clear to the rest of us when midnight is, given the need for any deal to be ratified.

Oil near highs as OPEC+ nears compromise

Oil prices are easing off a little following Wednesday's rebound, just as OPEC+ appears to be edging closer to an agreement. Tuesday's meeting was postponed by two days after a failure to find agreement earlier in the week but it seems they may have reached a compromise. Rather than a three month delay to the two million barrel increase in January, a one month is then expected to be followed by a gradual tapering of cuts in order to avoid the market going back into surplus.

This is roughly what was expected to come from these talks which will be why oil prices continue to trade around the highs. A three month extension was always likely to face strong challenges, especially with prices at current levels leaving a big buffer below. Producers will be keen not to hand the advantage to US shale and this may be enough to achieve that, although signs are that it is already making a comeback.

An extension to the cuts combined with the positive vaccine news could continue to support oil prices over the medium term, as long as the shale rebound isn't more aggressive than expected. WTI finds itself around $45 at the moment, with Brent around $48. Oil prices around $50 will likely suit all concerned after a torrid year for the industry.

Gold faces strong resistance after rebound

Gold is enjoying a third day of gains after suffering big losses for most of November. The rebound appears to have been driven by stimulus hopes as talks resume on Capitol Hill, with the prospect of Fed and ECB easing this month likely doing it no hard either at these levels.

I'm less convinced about the rebound in the near-term, in part due to my pessimism around stimulus talks. Gold faces significant resistance around $1,850, a level it repeatedly found support around over the course of the summer. A break above here could be encouraging. I'm not convinced at this point and think another test of the lows may come before any significant rebound in the yellow metal.

Bitcoin not giving up on festive treat

Bitcoin is continuing to struggle around $20,000 but is having another push today. There's a feeling of inevitability about this breakout, despite the corrective moves we've seen on approach to $20,000 in recent weeks. This may be nothing more than profit taking around a major psychological level that could make the eventual breakout all the more aggressive.

A move back below the late November lows may change the outlook in the near term but as we've seen in recent days alone, there doesn't seem much appetite to let go and pass up the opportunity to break into uncharted territory and all the buzz that would create. I anticipate a good Christmas for crytos.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.

Opinions are the authors — not necessarily OANDA’s, its officers or directors. OANDA’s Terms of Use and Privacy Policy apply. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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