Goldman Sachs: Brexit Is Back, Distribution Of Outcomes Widens

Goldman Sachs note that "by questioning the legal force of the Withdrawal Agreement, the UK government has shaken the foundations of the current trade negotiations. So far, it looks like negotiations will continue, possibly in parallel with other legal processes. In this sense, we think the news is incrementally positive. Our base case is that incentives remain aligned for a deal, and so we would fade excessive pessimism in UK assets, although we are conscious we may have further to run on the escalation path. Although we hit our trailing stop, we continue to think that 2s30s steepening is the right macro expression, with COVID-related weakness in the economy likely to keep front-end rates rich, while either a Brexit deal or vaccine news could see long-end rates reprice swiftly in Q4. Unlike in 2019, we expect that the UK curve will trade flatter on Brexit escalation, and steeper on resolution."