European equities are set to open down, with the tape’s value end, such as energy to lag early. All eyes are on Brexit developments, which seemed to affect volumes yesterday, which were relatively subdued. In the short term, I would exercise a little caution, with several equity market metrics flashing red such as:
- elevated retail sentiment
- put-call ratio (now at 20-year lows)
- RSIs (near 70 on both and ) all looking stretched.
If the Brexit deal pancakes, these red lights could trigger a rapid succession of sell buttons getting hammered
On the flipside, with the vaccine’s help, there is a good reason why these internal are flashing red as investors continue to look on the sunny side of the eventual vaccine rollout. But before we can make new gains, there is the usual sentiment tug of war between medium-term optimism and near term COVID despair.
I do not know how many times we have been down this road before. Still, all roads have led to stock market prosperity eventually as the post-pandemic market rally has moved seamlessly from policy-driven to vaccine-driven Nirvana and should continue so as more investors get knocked off the fence for fear of missing out on glorious post reopening earnings returns that sit at the other end of the vaccine rainbow.
UK PM Johnson and European Commission President von der Leyen will meet in Brussels later in the week. Number 10 says it’s unlikely to be today, and there’s an EU summit on Thursday which the UK doesn’t want to crash. So likely Wednesday or Friday.
Today, the deadline for Hungary and Poland is reportedly to offer a clear signal that they’ll lift their veto over the European Union’s budget or risk losing billions of euros in aid, officials have warned. A senior diplomat in Brussels said that in the absence of a breakthrough, the EU would turn to ‘Plan B’: launching the economic recovery fund while excluding the two holdouts. Any EU member discord should help the short view.
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