An escalation of European COVID -19 restrictions in response to fears around a new variant, which is supposed to be faster spreading, should, and did, of course, elicit a negative reaction from prices via the near-term global growth impact.

Illiquid conditions will persist through year-end, but dips like this could present more of an opportunity to fade than anything else.

Stock investors can count their lucky blessings the multiple vaccines in the pipeline are inoculating downside risk. Simultaneously, the US stimulus bill should allow investors to glide and navigate the numerous viral air pockets across the year-end finishing line.

The US Covid-19 relief bill got rather whitewashed yesterday despite being a major achievement in this lame-duck session.

Ultimately this holiday stocking stuffer of a deal should be positive for US markets because:

a) this is the second-biggest stimulus package ever

b) parts of the package expiring in March will create the prospect of a follow-up package in Q1

Still, I do not think we are completely out of the weeds just yet. Yes, 2020 is ending, but COVID-19 and fiscal policy will always be at the centre of the debate.

Now investors have “Georgia on my mind.” So, with the December FOMC behind us, the pair of Georgia Senate runoff elections (on January 5) represent the next major source of event risk for markets.

While I still think stocks have a long way to run higher in 2021, still another market manic Monday shows the potential dangers of the market being universally the one way.

You will read a lot of after the fact analysis suggesting yesterday was a holiday exaggerated selloff. While to a large degree, that might be the case on some overbought positions like Oil and short dollar.

However, ignoring these early warning signals and not brace yourself for a challenging start to 2021 is flat out dumb.

Indeed, this could only be the tip of a reflationary washout. The risk is growing for significantly extended lockdowns in several countries. There is a gap to be bridged between now and when experts expect herd immunity – in the middle of Q2 at the earliest.

GBPUSD recovers amid positive Brexit headlines

GBPUSD is staging a recovery. Media reports the UK is willing to lower the EU haircut for fish caught in the UK waters down to about 33% from 60% previously, while the EU had last said 25% was their best and final offer.

So, while they have not yet reached an agreement on this aspect, the gap has now narrowed, and the chances for a deal somewhere in the middle have increased. Still, any sign of progress at this late in the game should make a deal that much harder to walk away from completely.

Oil markets

Oil slid and then finally crashed off the end of the reflation runway before bargain hunters helped lift Brent crude back above $50.00. The nefarious mobility restriction linked sell-off saw both grades drop about 6% amid the new super -spreading strain of the virus, which sees politicians mandating more mobility restrictions in most of Europe.

And with the UK at the epicentre, it triggered absolute border pandemonium.

Dip buyers support the EUR

After what is getting viewed as a garden variety US dollar correction overnight triggered by Brexit fears, but mildly exaggerated by holiday conditions and compounded by the latest FOMO USD short positioning build, the EURUSD found an abundance of buyers on the deep dip into the 1.21 handles.

The “short dollar” clear-out is probably nothing more nefarious than stretched positioning getting taken out to the woodshed on Brexit scares.

However, it shows the potential dangers of universally bearish USD sentiment as we roll into 2021. Still, with any currency pivots, they should never be taken lightly as FX markets tend to provide early warning signals, and we need to be on our toes through year-end and well into 2021.

Malaysian Ringgit

The Ringgit could claw back some losses on recovering oil market sentiment, but still, year-end position squaring proclivities could be the order of the day as the FX markets become very much. transactional rather than speculative at this time of year

Thai Baht

The THB hit the skids as travel and leisure stocks tanked on the new European mobility restriction. Even domestically, my plans to attend a New Year moon festival have been quashed by the local government imposing celebration and larger gathering restrictions after a recent cluster outbreak in Samut Sakon, far too close to Bangkok.

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