Market news 4 January 2021

A relatively “skinny” Brexit deal was agreed on 24^th December – some key points below:

• Goods: no tariffs or quotas on goods; other checks and controls apply (e.g. SPS).
• State aid: strict rules on subsidies but only enforceable through domestic courts (not ECJ).
• Level-playing field: principle that regulatory divergence comes with costs, but complicated enforcement mechanism (independent arbitration etc).
• Fishing: EU quotas gradually decline 25% over 5.5 year transition, followed by annual negotiations that presume EU access and existing quotas.
• Services: no overall agreement; country-by-country rules apply (e.g. recognition of qualifications varies by country).
• Free movement: UK nationals have 90-day visa waiver that covers personal and most business, but longer right-to-work rules set by each member state (e.g. UK points-based system).
• Security: access to some databases but not others; co-operation can be withdrawn in certain circumstances.
• Financial services: not yet decided; both sides targeting end of March for agreement (with limited equivalence in meantime).
• Data adequacy: end of June target for agreement on personal data protection; 6-month “bridging period” in interim.

Covid cases accelerating rapidly but vaccine rollout and stimulative fiscal and monetary policy mean markets remain unperturbed

• The response to the Brexit deal was relatively muted as the market had largely discounted this, with the strength in UK equities and GBP more deriving from the global “risk-on” tone to markets.
• Perhaps the most notable recent market trend has been the weakness in USD, reflected in particular in the strength of non-fiat currencies, with gold up 6.8% in December and bitcoin up 50% over the month to all-time highs (trading close to $35,000 at the start of January vs a low beneath $4,000 at the peak of the market stress in March 2020).
• Also of note is the strength in ESG/thematic – for example, the iShares Global Clean Energy ETF rose 140% in 2020, of which 40% was added in December alone.