March 24, 2023
Anticipation of Brexit Deal Fuels Stocks and Sterling

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On Thursday, the British pound gained and stocks rallied as the European Union and Britain closed in on a trade agreement and investors bet on a global economic recovery. The EU and Britain were hammering out the final points of a narrow trade deal, and an announcement of the said deal is expected imminently. This only boosted an already optimistic mood in the last trading session before the break for Christmas. While the markets had been expected a last minute deal for a long while, it finally removed the chances of a no-deal exit, 4 and a half years after Britain had voted to say goodbye to the trading bloc. It would certainly be a relief for the markets. 

There was a 0.07% increase in the FTSE 100, whereas the FTSE 250 index, which is more domestically-focused, reached its highest level after February and also resulted in a record high for the UK small caps. There was a 0.17% gain for the STOXX 50, while Germany’s DAX had gone up by 1.26%. Tracking shares in almost 49 countries, the MSCI world equity index increased by 0.16% due to solid gains in the Asian market. The Brexit deal only added to an already bullish-mood in the markets, as the year comes to an end.

Investors have chosen to look beyond a surge in COVID-19 cases and increasing unemployment in the hopes that more fiscal spending and the coronavirus vaccine will help drive an economic recovery in 2021. Thanks to record sums of stimulus from the central banks, the stock market has been pushed towards new peaks by investors. Analysts said that this was the ‘mistletoe effect’ because anticipation of a trade deal had stoked a rally in the markets, despite the fact that it would have to be approved by the EU governments and the Prime Minister Boris Johnson.

There was an increase in Sterling by 0.6%, as it was just shy of its highest level in two years at $1.3586. Still, the 5% rally in the pound since early November means that most of the Brexit relief has already been incorporated in the currency. The euro was trading above $1.22, but the dollar fell by 0.1%. On Wednesday, Wall Street had ended on a high note and a stronger open was promised by futures later on Thursday. There was a raft mixed economic data from the US, which showed that there was an increase in new orders for durable goods and jobless claims had fallen.

However, personal income had also fallen and consumer spending also saw a pullback, along with fading sentiment as a resurgent pandemic made things difficult. The comments made by President Donald Trump about threatening to not sign the $900 billion stimulus bill were mostly shrugged off by investors. Analysts said that even though the pandemic resulted in lost jobs and lost lives in 2020, a successful rollout of the vaccine in 2021 could prove to be a game changer, as society would be able to return to pre-pandemic habits.

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