US equities fell overnight with no breakthrough in stimulus talks after the White House issued a $916bn stimulus proposal late Tuesday.

Key sticking points remain much as they have been for weeks: Liability protections for businesses, sought by Republicans though some recent willingness to negotiate, and funding for state and local governments, sought by Democrats.

No Brexit breakthroughs either. UK PM Johnson is in the final throes of an apparent make or break discussion with EU President von der Leyen in Brussels.

Providing the negative headline for sterling overnight, German Chancellor Merkel indicated that the EU would accept a no-deal outcome if the agreement could not be reached.

Still, when it comes to deadlines and Brexit, they are meant to be broken, so no surprises, talks have been extended to Sunday.

Keep in mind; we are in a stalemate, not checkmate mode.

Political wrangling continues around stimulus

Stimulus and vaccine optimism gave way to political wrangling on both sides of the pond overnight.

Jittery markets jangled as skittish investors zeroed in on the lack of political development in Europe and the US on Wednesday, as scepticism over the UK’s inability to secure the last chance Brexit deal has yet again drained sterling’s optimism. And the gridlocked congressional dealmakers on fiscal stimulus in the US rattled the stock market.

With investors peering down the stimulus holiday wishing well, US stocks remain perilously perched. The hope is that Congress would by now have reached an agreement on a spending package to brace and bridge the gap for American households and businesses to when the majority of the population gets inoculated.

Sadly, the fiscal fiasco has once again turned into a bit of a political blame game. McConnell says the Democrats are moving the goalposts in the aid bill and that Schumer and Pelosi are brushing off GOP aid proposals.

It is a sad state of affairs when it comes to the state of US politics. The numbers are aligned for really the first time. It is now the composition where the sticking points remain, and it’s pure politics right now.

McConnel needs the Trump base for the Georgia runoff, so he has moved from $500bn to $916bn while on the far as the Democrats, it would seem that their face-saving in a concession would be to say that this will be a short-term deal ahead of a larger package once Biden is in the office.

Again, to the extent that it comes down to Trump, it is difficult to say what his real motivations may be in this lame-duck session – how badly he wants to get a deal done versus being ok with blaming the Democrat’s fault if one does not get done.

Stocks have not fallen too far out of bed as the market knows that stimulus in some form is coming. However, investors are not sure of the composition and timing, where the balance of angst sits.

Vaccine brightens the medium-term outlook, but what about us over the months to come, the Main Street asks?

Also, there is enough positive vaccine feeling to keep the market in check. The World Health Organization said jumps in weekly COVID-19 cases in the United States and Canada are particularly problematic as winter approaches.

But the US is drawing closer to vaccine approval. FDA approval could come as soon as Friday or Saturday with the first US injections happening on Sunday or Monday, said Moncef Slaoui, chief adviser to the Trump administration on vaccine development.

Oil markets

• Gasoline demand continues to soften; implied gasoline demand below 8mbd

• Oil traders picked up the pieces after quickly vaccinating an inventory washout.

Oil traded higher as soon as London came in after reports of an explosion at two oil wells in Iraq. While the field does not produce a critical amount, but any oil facility attach typically makes the market nervous in a knee jerk fashion.

Meanwhile, the EIA stock report was a shockingly colossal miss. The market had been expecting a small draw in oil inventories. The 15+ million barrels build pushed Oil down in a straight line. Gasoline and distillates were also very weak with both throughput posting builds.

In short, higher imports, record declines in exports, and deficient gasoline demand are what caused this surprise.

Considering how bearish the report was, the oil-price sell-off was limited. Optimism over the vaccine prevails and continues to limit any serious downside action. Eventually, Oil retraced to positive territory before giving way and tracking falling US equities lower into the close.

Oil has moved to the top of the recent trading range following the supportive outcome of last week’s OPEC+ meeting and positive vaccine news, and an optimistic view of the pace of the global economic recovery.

Still, the sentiment will remain sensitive to any signals that the vaccine rollout could be longer than expected. Volatility is likely to stay high ahead of the next OPEC+ meeting in early January. While the recent rally leaves oil at risk of profit-taking into year-end, it is unlikely the sell-off will drift too far from current base levels, as evidenced by the impressive rebound after a colossal miss on the inventory reports.

International market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi