At Loggerheads: Post-Brexit Trade Deal Talks Hit A Snag

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On the latest edition of Market Week in Review, Chief Investment Strategist Erik Ristuben and Head of Portfolio & Business Consulting Sophie Antal Gilbert discussed the latest developments surrounding Brexit trade talks and U.S. fiscal stimulus efforts. They also provided an update on trends in market leadership, including the recent outperformance of value stocks relative to growth stocks.

What are the key issues holding up a UK-EU trade deal?

Brexit negotiations over a trade deal between the UK and the European Union appear to be at loggerheads, Ristuben said, noting that Prime Minister Boris Johnson recently stated there’s a strong possibility the two sides won’t reach an agreement by the Dec. 31 deadline. A number of sticking points are derailing the prospects for a trade deal at the moment, Ristuben explained, including the border situation with Northern Ireland, fishing rights, and competition rules. 

The stalemate led to some weakness in European markets the week of Dec. 7, he noted, with the STOXX® Europe 600 Index finishing the week down roughly 80 basis points, as of mid-morning Pacific time on Dec. 11. Interestingly enough, over the same timeframe, the FTSE 100 Index was essentially flat, Ristuben added.

The trade talks hit a snag at the same time the UK began its COVID-19 vaccination campaign, he observed, moving the nation one step closer to a broader reopening of its economy. “The UK is expected to report an 11% contraction in 2020 GDP (gross domestic product). With vaccinations underway, it’s very clear that the country will experience a rebound from this decline in 2021—regardless of whether there’s a post-Brexit trade deal or not,” Ristuben remarked.

The lack of a trade agreement would still lead to a reasonably sized hit to the nation’s GDP, he explained, but such a hit may be masked by the overall economic recovery expected in the UK due to widespread vaccinations in 2021. “This is no doubt part of the political calculus of Johnson and his cabinet as the UK inches closer to the trade-deal deadline,” Ristuben said, adding that the two sides have promised to continue negotiations in the days ahead. 

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