Muddled Risk Environment In The Coming Weeks

Taking stock

Equities small bounce, bonds mixed, and broad slightly lower in an illiquid post-US Thanksgiving holiday session (half session for bond and equity markets). Taking stock of some of the most recent developments we are likely still in a muddled environment for risk in the coming weeks.

Yellen as Treasury Secretary would still need Republicans to play ball on stimulus and unless the Democrats are able to win the Georgia run-off races (betting markets favor Republicans at just under 70% probability), Senator McConnell has given no indication yet that he will budge.

Questions around the AstraZeneca (NASDAQ:) efficacy results may mean a new trial for US approval which pushes the timeline back (though they don’t expect that to hold up approvals in the UK and EU), and anyhow risk has so far notably struggled to follow through on its momentum since the positive news from Pfizer (NYSE:) and Moderna (NASDAQ:).

With the arrival of the vaccine, gains in global equities are likely to be front-loaded. Europe should outperform the US over the coming weeks and months. Europe’s relative performance to the US is driven by Value’s relative performance to Growth (Europe is more heavily weighted in Banks and Energy and the US heavier in Tech). I expect Value’s outperformance of Growth to only be a tactical opportunity, and position for European (and EM) outperformance of the US for the rotation in early 2021

Sterling Falls On More Negative Brexit Headlines

UK PM Johnson says the UK can still “prosper mightily’ without a trade deal, Bloomberg reports. is not liking this headline from Boris’ TV interview. A deal will require engagement from political leaders, likely a Boris/von der Leyen/Merkel/Macron call or meeting at some point over the next couple of weeks. Any sign of something like that happening would be very positive. But the longer the stalemate continues, the more ‘no-deal’ might become the way of least resistance for both sides.

Not too surprisingly Gold Falls Through Key Support

has broken the 200-day moving average with the next support level at 1750. 

Caution Ahead Of OPEC+ Meeting

Caution is merited ahead of next week’s OPEC+ meeting. The consensus seems to be pricing in an extension of the current cuts by at least three months, but the recent oil-price rally may have reduced OPEC’s sense of urgency and, combined with signs of dissent within the group, there is the possibility of the meeting falls short of those expectations. The price will react negatively if a decision on cuts is delayed, likely falling below $45/b, but is unlikely to move up meaningfully if an extension is announced. An extension still seems the most likely outcome, but risk/reward is skewed to the downside

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