EU sets Brexit deadline, BoJ ponders rethink

It’s looking like a make or break weekend for Brexit. The European Parliament is insisting on a Sunday deadline for talks if the two sides wish it to be ratified before the end of the year, when the UK leaves the transition period. There are mechanisms to get around a disastrous no deal, even a temporary one, if they go beyond then but I can’t imagine either side has any appetite for that. But then, it is Brexit.

The two sides are closing in on a deal, with fishing remaining the final major hurdle, although some work is still needed on a level playing field. A phone call between Boris Johnson and Ursula von der Leyen didn’t provide that breakthrough moment that the Prime Minister’s meeting with Leo Varadkar did last year but it’s clear we’re edging ever closer to an agreement.

Johnson is desperate to be taken seriously on his willingness to part without a deal and while the EU appears to accept this, at least publicly, the markets are still having some trouble. The pound remains above 1.35 against the dollar and around 0.9 against the euro, as traders continue to hold their nerve. That may soften going into today’s close.

Barring any breakthroughs today, I would be surprised if markets don’t see some caution today given the unusual level of weekend risk, particularly on the Brexit side.

BoJ eyes policy rethink and government plans to ramp up spending

Faced with inflation falling at its fastest pace in a decade, the Bank of Japan today committed to assessing the sustainability of its easing policy, with the results expected in March. It’s not clear at this point what tweaks would be likely but it is clear that something different is warranted after all these years. The central bank also extended its support to pandemic hit businesses by six months, in line with what others have done recently, including the BoE on Thursday.

This comes as the Japanese government seeks to shore up the economy which has suffered this year as a result of Covid-19 and is currently experiencing another dreadful surge. Record spending next year of 106.6 trillion yen will aim to get the economy back on track as vaccines enable us to move into the recovery phase after a horrific 2020.

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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