Brexit overshadows UK becoming first country to approve Covid vaccine

The risk of no-deal for the UK at the end of the Brexit transition period has overshadowed the announcement that the Pfizer/BioNTech vaccine has been granted approval by the Medicines and Healthcare Products Regulatory Agency.

The UK has ordered 40 million doses of the vaccine, which will be administered to half that number of people as two doses are needed for immunity. People most at risk of dying from Covid-19 will be prioritised when the first order of 800,000 doses arrives from Belgium, where the vaccine is being manufactured.

Prime minister Boris Johnson described approval as “fantastic news” but warned people not to get their hopes up about the speed at which the vaccine will be rolled out.

But markets delivered a muted response on the back of the Wednesday morning announcement instead focusing their attention on the prospect of a disorderly, no-deal end to the Brexit transition period. Although the FTSE 100 rose 1.2% over the day most of those gains were in the afternoon with the index buoyed by weak sterling.

The approval came just 23 days after the first data from Pfizer/BioNTech’s phase III trial was published, making the UK the first country in the world to grant approval for the vaccine. The US Food and Drug Administration is convening a meeting on 10 December over approval of the vaccine, while the European Medicines Agency expects approval to be granted by 29 December.

Michel Barnier informs EU27 that no-deal is looking increasingly likely

Hargreaves Lansdown senior investment and markets analyst Susannah Streeter (pictured) says the FTSE 100 opened with a “distinct lack of fizz”.

“Eyes and ears are also turning to the Brexit talks, which still hang in the balance,” Streeter says. “Nervousness about the outcome of negotiations pushed sterling below 1.11 against the euro, and we should expect further volatility with concerns still high that the UK could end the transition year without a trade deal in place.’’

She noted the FTSE 100 gained more than 12% in November, its biggest climb in 11 years, and that the vaccine roll out had largely already been factored in by markets.

IG senior market analyst Joshua Mahony also noted the vaccine news had failed to lift markets.

“The pound has been hit hard on the news that Michel Barnier has notified the EU27 that a no-deal scenario is looking increasingly likely,” Mahony said. “While traders have largely taken running commentary with a pinch of salt thus far, the growing fear of a disorderly exit at the end of the month is likely to drag on the pound in the absence of a deal.”

He says the UK now faces a race against time to vaccinate enough people before a third wave comes to pass next year. England officially leaves nationwide lockdown today in favour of a tiered system.

A boom for profits and equities in 2021?

Interactive Investor head of markets Richard Hunter says Brexit had also overshadowed “comforting factory activity and confidence data”.

“The FTSE remains down by 15.3% in the year to date, but the positive November momentum which spilled over to the first trading day of December is a possible sign of a turn in the tide of sentiment towards the UK’s flagship index.”

JP Morgan Asset Management global market strategist Mike Bell also voices some optimism despite the muted market response.

“The scientists have come to the rescue and delivered what investors were hoping for Christmas this year. As this year’s savings are spent next year, the global economy should boom driving corporate profits and equities higher in 2021,” Bell says.

Beyond the UK and Europe, hopes of a “massive” stimulus deal being agreed in the US delivered a “roaring” session on Tuesday for the FTSE 100 and a record close for the S&P 500, Streeter says. That may have prompted some profit taking on Wednesday, she says.

Hunter, likewise, points out December has got off to a strong start.

“In the US, talks of a much anticipated fiscal stimulus package appear to be back on the table at a time when the economy is still stuttering under the effects of the pandemic. Hopes for a further injection aimed at accelerating the recovery tempted back the bulls.”

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