Markets are breathing a very big sigh of relief after what has been a tumultuous year which went to the wire with Brexit negotiations and US stimulus talks. Stocks futures Stateside are near record highs as EU-UK trade talks are wrapped up (for now) and President Trump finally signed off on the virus relief bill.

Risk sentiment is on the rise with European stocks and notably the German Dax trading up 1.5% to fresh new highs, above the previous top set back in February before the pandemic triggered a sharp global selloff in stocks. This is actually the first trading session in Europe since the Brexit trade deal was signed off, so it has given traders the first chance to react to that momentous agreement. UK markets are closed for a bank holiday.

 

Of course, markets are much thinner at this time of year and we sometimes see quite violent moves for no apparent reason. But it seems this year we are much calmer and the transition to the new year will be a lot smoother. That path has been made easier by the Trump signoff and the package should give a significant boost to the US economy next year. Indeed, Goldman Sachs economists think the world’s biggest economy will grow at an annualised pace of 5% in the first quarter of next year, an increase of 2% from their prior estimate.

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Softer Dollar in quiet trade

The greenback is a touch milder today with the risk mood upbeat and bond markets offered. Traders are eyeing up the pivotal 1% yield in the US 10-year Treasury again as inflation expectations move higher once more. There is record treasury issuance this week with $176 billion worth of bonds being auctioned.

DXY lows are of course in play at 89.63 and if we do break and hold below here, then the February 2018 low at 88.25 offers the next line of support.

 

Sterling disappoints

Although a Brexit deal has been passed which means we will not see a rise in tariffs on goods after the end of the year, GBP is lower against the Euro and even the Dollar. Significant work and agreement are still needed on major industries which were not covered in the trade deal, especially financial services. Relations have no doubt also been scarred by the last few months and let’s not forget – this is one of the hardest possible Brexit outcomes.

Sterling bulls are desperately keen to aim for the recent cycle high at 1.3624 made on 17 December. We are squarely in the middle of the bullish channel from the September lows but there is little momentum in these thin markets at the moment.

 

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