Sterling has made a bright start to the week, moving higher across the board on rising hopes that the UK may be set to join the EEA (European Economic Area) post-Brexit. The positive developments come about after comments from the Norwegian PM, Erna Solberg, in which she seemed to pave the way for the UK to join the EEA which would basically constitute a 'soft' Brexit by remaining in the single market despite leaving the EU.
Brexit back in focus
The markets focus on Brexit developments has been remarkably low in recent months given that the clock is ticking and the March 2019 deadline is growing ever nearer, but this morning’s moves could suggest an increase in sensitivity going forward. There’s been a clear, albeit measured, move higher in the pound on these reports today and Brexit talk could well re-emerge as a more influential driver of the markets in the not too distant future.
UK membership of the EEA had previously be seen as unlikely with senior Norwegian diplomats and business leaders warning that it would distort the relatively small group away from it’s current priorities such as protecting agriculture and fishing. However, last week saw the House of Lords voted in favour of EEA membership and whilst at present the Commons would be unlikely to follow suit, the latest comments from Norway do increase the chances of this happening.
FTSE near record peak
The rally in the FTSE over the past 7 weeks has been pretty incredible with the benchmark enjoying a strong, clean move higher to trade within striking distance of its all-time high. The gains in excess of 12% over the period have been all the more impressive considering the lack of any real pullback with 24 of the 31 (77%) sessions since the March 26 low seeing the market close higher - or put another way there’s only been 7 daily declines since late March. Key drivers to keep an eye on going forward this week will be the strength of sterling, with a potential recovery a threat to further FTSE gains, as well as the oil price which has driven both BP (LON:BP) and Royal Dutch Shell (LON:RDSa) to multi-year highs.