Key Talking Points:
- EU confirms that Brexit talks have stalled
- UK retail sales increased in October
The FTSE 100 seems to hold steady this morning as UK assets prepare themselves for more Brexit turmoil, as news broke last night that EU negotiator Michel Barnier had halted face-to-face negotiations due to a Covid-19 outbreak in his team.
Overnight, US stocks managed to break three days of continued declines, finishing with modest gains, which seems to be the reason why the FTSE 100 has started the session slightly higher, but gains seem unlikely to hold given positive momentum in Europe has mostly faded.
The macro-environment doesn’t seem too promising as of current, with rising Covid-19 infections around the world causing more and more social restrictions, undermining the possibility of a swift economic recovery once a vaccine is eventually rolled out. To top this, Brexit negotiations, which have seen conflicting headlines in the last few days, seem to have hit another dead end after a week of intense negotiations took place in London.
EU CONFIRMS NO PROGRESS HAS BEEN MADE
Despite Barnier tweeting yesterday that he would not be attending the EU leaders briefing this morning due to the need to self-isolate, the meeting was still scheduled to go ahead, but traders remained doubtful that any significant progress would be announced in his absence, causing the British Pound to drop slightly against the Dollar as news broke. And suspicions were right, as EU envoys were briefed this morning that all three Brexit hurdles – fisheries, a level playing field and governance – remain unresolved, adding that the UK had not made any concessions on these issues, showing once again a hardened stance from the EU.
Talks are now set to continue remotely, but Number 10 is adamant that whilst progress needs to be made to secure a deal, it cannot be done at the cost of the UK’s sovereignty. The focus will remain on any sign that there is a resolution in sight, as speculations grow whether both parties are willing to accept a no-deal given current macroeconomic situations. Despite a stronger Pound being a negative factor for UK stocks, in the event of a deal we would likely see stocks pushing higher as a sign of relief given the end of uncertainty, possibly followed by corrections as the information sets in.
On a more positive note, UK retail sales figures were released this morning, showing that spending had increased 1.2% in October from the previous month, with the year on year reading coming in at 5.8%. This is likely due to early Christmas shopping ahead of the November 5th closure of all non-essential businesses, pointing to a possible decline in November after 6 months of growth.
FTSE 100Daily Chart (15 January – 20 November 2020)
The FTSE 100 struggles to overcome a key Fibonacci level as vaccine optimism, which helped consolidate a significant recovery from the Octiber 30th lows, continues to fade. The UK stock index reached a five-month high on Monday but found increased resistance at 6465, where the 61.8% Fibonacci retracement from 7549 to 4776 is found. This level was significant back in the summer highs seen in June, as buyers were unable to consolidate above this level despite market optimism at the time. A break above this significant resistance would put focus on the 76.4% retracement, where an attempt to recover from the first coronavirus falls were halted. Moving averages seem to show that further upside is possible, but momentum is stalling, causing lower highs for 4 consecutive days.
— Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin