As European Equity Markets Set To Wrap Up 2020

European markets were little changed overnight; US markets traded off the highs as Senate Majority Leader Mitch McConnell blocked an effort by Democrats and President Trump to force quick action in direct stimulus payments of $2,000. Wich is providing today's wet blanket effect.

Trading volumes should remain quiet ahead of the New Year with half-day trading in Germany (close 13:05 GMT) and Austria (close 13:20 GBT). That said, this is the last equity trading day of the year for many key markets across Europe, so there may be some dispersion or even outsized reduction volumes.

Key news in the UK is the Oxford/AstraZeneca vaccine authorisation, which brings forward a potential end to further restrictions given the easier logistical and storage requirements. That said, Health Secretary Matt Hancock is expected to announce additional mobility rules within the coming days as cases continue to rise, over 53k cases were confirmed Tuesday with lower-tier regions adding to the count. I suspect with year-end risk reduction proclivities dominating flows under the hood, and with most clients side-lined, traders will error on the side of caution today.

Risk sentiment remains buoyant, with vaccine rollout hopes providing confidence despite growing covid-19 case numbers. But the Georgia runoff hurdle will be the one to watch to kick off the new year.

I think the risk sentiment including FX market views, although we are at lofty levels on both, are getting held back as it is tough to get much of a steer on the senate runoff elections in Georgia. Polls show both races neck-and-neck, but this is not easy to poll accurately as runoff and turnout are expected to be down sharply from Nov. 3 when some five million Georgians voted 68% of the voting population. Early voting numbers provide some measure of optimism for Democrats; some 2.34 million Georgians have already voted early.

Likely knowing what side of the toast is buttered and at odds with the fiscal conservatives, the two incumbent Republican senators support Trump's demand for the $2000 checks. Still, there is also the uncertainty of how President Trump's interventions help or hinder, with one Trump adviser urging voters not to participate due to the (unfounded) allegations of fraud. Georgia has not elected a Democratic senator in 20 years, but it is hard not to think the races are a toss-up with all the bluster in the background.

Keep an eye on the Georgia runoffs as the next key catalyst. I think the races are closer than the betting odds would suggest – a Democratic sweep with such a tight majority should not mean aggressive corporate tax hikes as the market may fear. Simultaneously, more stimulus will get poured on providing jet fuel for risk markets and sending the dollar weaker.

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