The Week Ahead:Still something left on the table?

Some rules are there to be broken and so the ‘no smartphones at the table’ policy cracked at Sunday brunch in this household with a loud ‘ping’. It was of course a notification from a well-known newspaper with the headline that both sides in the Brexit talks had agreed to keep talking in search of a trade agreement. There was also an acknowledgement that infamous Brexit deadlines have been missed ‘over and over’, broken so many times that one Sunday newspaper had chronicled their history with a mixture of shock and glee.So, negotiations are set to carry on in Brussels to see if a deal can be reached ‘even at this late stage’. This is a mild understatement to say the least, but then trade talks do have a history of going to the end beyond the last deadline. And breaking another deadline, in order to reach agreement. Think for example of the Nafta 2.0 negotiations that involved the Canadian side draw a line in the sand on numerous issues, only for the author of ‘The Art of a Deal’ to cave in and strike a relatively favourable deal, in contrast to walking away and inflicting a sizeable self-imposed wound on his own economy. That sounds rather familiar, in the near-term at least, and seems like a modern-day template for trade negotiations and brinkmanship.Sterling has jumped in early trading up over 1%, even as PM Johnson repeated his warning from last week that a no deal scenario was most likely. ‘Very difficult’ talks mean movement is needed on the level playing field and agreeing on the so-called ratchet clause, where both sides mutually agree to raise standards. But the rhetoric feels slightly less gloomy as ‘minimal progress’ is still progress.This Wednesday sees the final FOMC meeting of the year, where a dovish message is expected as well as some new communication tools. We may get some forward guidance around the Fed’s asset purchases, though as per the last meeting’s minutes, this could come at its first get together in the new year. Some are speculating that the scale and scope of its QE program may be changed (another ‘Operation Twist’) with a shift to longer-dated bond purchases. The dollar has been consolidating around its recent lows over the last few sessions and any kind of expanded bond buying plan would see the greenback break down in line with the dominant long-term trend.We also have a Bank of England meeting this week which will see policy left unchanged due to the uncertainty of the Brexit talks. The MPC recently extended its QE programme so there is no urgency to do more at this stage. If a deal is reached, then GBP/USD can push up to 1.35 and beyond, while an ‘Australian’ agreement (aka no deal) sees 1.31 before November’s low around 1.2853, though dollar weakness may offer cable some support. Perhaps at this stage, it’s best tolook to Irish PM Varadkar who stated recently that ‘deals are done at the last moment because everyone needs to be sure it was the best possible deal and there is nothing left on the table.’ Well said that man.