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10th Dec 2020. 10.29am

Regency View:

Brexit Trade Talks – Market Alert

Brexit trade talks set Sunday deadline

Negotiating 101 – ‘use time pressure to focus both parties on reaching a deal’.

Let’s face it, these trade talks were always going to go down to the wire and yesterday’s three-hour seafood dinner between Boris and Ursula von der Leyen did little to break the deadlock over fishing rights.

This morning’s soundbites from the UK government indicate that “very large gaps remain between the two sides”.

They did agree on one thing whilst they were eating their steamed turbot, and that was to set a Sunday deadline for a “firm decision”.

The Sunday dealine is of course less than ideal for those of us who like to trade stocks. It means that Monday gap risk couldn’t be much higher, and if we leave positions on over the weekend we should ensure that we’re comfortable with our open risk.

A key barometer for the Brexit talks is EUR/GBP and we can see that sterling has lost ground this morning with EUR/GBP rallying.

EUR/GBP Key Structural Levels

EUR/GBP Key Structural Levels

As for the FTSE 100, this is a more mixed picture because the UK’s headline index is full of exporters who love a cheap pound. Hence, as EUR/GBP has been rallying, the FTSE 100 has been steadily moving higher, breaking above resistance.

In simplistic terms, a stalemate in Sunday’s negotiations should see a large drop in sterling on Sunday evening, which should in turn see exporters, such as Diageo (DGE), gap higher on Monday. It would also likely see UK domestic stocks, such as housebuilders like Berkeley Group (BKG) gap lower at the open.

FTSE 100 Key Structural Levels

FTSE 100 Key Structural Levels

Predicting the outcome of an event like this is almost always a fool’s errand, but one thing we can guarantee is a volatile open on Monday, and that is something we all should try and manage as best we can.

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Disclaimer:

This research is prepared for general information only and should not be construed as any form of investment advice.