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Key market themes: the rule of three?

Fixed Income Fund Manager David Katimbo-Mugwanya reflects on the recent developments that have boosted markets:

Since the end of 1st quarter of the year, three major risks have dominated the headlines and market participants’ thoughts by extension. The recently concluded US presidential elections, the impact of the COVID-19 pandemic and post-Brexit UK-EU trade negotiations.

Over the past week alone, rays of light are piercing through two of these dark clouds with news of a divided US government and Pfizer’s vaccine breakthrough lifting risk sentiment and sovereign bond yields rather sharply as a consequence. In light of these events, the probability of negative interest rates out of the Bank of England has arguably reduced. It is worth adding that internal Monetary Policy Committee members have been noticeably less enthusiastic in endorsing the policy tool on these shores. After all, they voted to extend the central bank’s Asset Purchase Programme by a larger-than-expected £150 billion in early November.

With the pandemic response having taken centre stage over this timeframe, it is apparent that Brexit negotiations have come somewhat lower on the list of UK government’s priorities. Suggested ‘final’ deadlines on talks have proved more elastic than finite in fact. The adverse impact of the latest COVID-related restrictions to business activity on both sides of the English Channel may add impetus to ongoing discussions. A deal is there for the making, we have heard. It is a common saying in London, that one waits patiently for a bus, only for three to appear at once. Tangible follow-through on these negotiations could be the third proverbial bus that boosts risk markets once again in 2020.