MNI Gilt Week Ahead - December 7, 2020

• Brexit talks are undoubtedly the focus of UK markets this week. However, the BOE Financial Stability Report will be closely watched for comments on negative rates.
• Weekend press reports were mixed with the Brexit trade deal remaining on a knife edge. As we noted last week (see here for more), the Thursday 10 December deadline seems to have been firmed up. The EU Summit begins on Thursday 10 December and had long been seen as the last practical date for the EU to get together to sign off on a Brexit trade deal and still allow the time for it to pass through national parliaments and the European Parliament before the transition period ends on 31 December. However, the Internal Market Bill will pass from the House back to the Lords today (with the controversial clauses that override international law added back in) and then pass back from the Lords to the House on Thursday 10 December. At this point the bill is likely to reach final publication and hence erupt a further row if negotiations are still ongoing and the controversial aspects cannot be taken out.
• In terms of near-term timings, Barnier has already briefed EU Ambassadors at 6:30GMT this morning while Johnson and von der Leyen are due to have another phone call today. The Times reported that Macron and Merkel had softened their stance and were now presenting a united front in order to get a deal. Some media outlets reported that a deal on fisheries was close, while others reported that this was not the case yet. All reports seem to suggest that no agreement is particularly close on the Level Playing Field however. Headlines will continue to dominate UK markets.
• The Financial Stability Report and FPC Minutes will be published on Thursday 10 December at 7:00GMT. As our policy team reported back in mid-October (see the full story here), the PRA's survey to banks on readiness for negative rates had a deadline of 12 November and this week's Financial Stability Report will be the natural stage to report the findings of the survey. If banks are not ready now we will likely find out how long the BOE now expects before negative rates could be effectively implemented. This will set the scene for next week's MPC meeting where the pace of QE and the technicalities of which gilts are eligible for purchase will be key (alongside any further clarity on negative rates).
• This week will also see monthly GDP for October (although this is already fairly stale as it was before the November English lockdown. We will also see the last gilt supply from the DMO this calendar year.

GiltWeekAhead07122020.pdf