Good morning,

German politicians have agreed a stricter lockdown over the Easter weekend, as well as extending the current lockdown measures until the middle of the month.  The growing wave in Europe will “inevitably wash up on our shores” according to Boris Johnson, who at least appears to be learning from history and the last twelve months of lockdowns that have been preceded by steep increases in case numbers on the continent.  There could well be a plan to overcome the threats of vaccine nationalism, which comes in the form of sharing the available supplies that are on the continent – a suggestion by the EU.  Boris has sent former envoy to the EU, Tim Barrow, to try and get something agreed on this – a seemingly safe pair of hands, having been ambassador to Ukraine, Russia and then the EU.

If this deal can be done then it might unlock some goodwill that can be put towards the Northern Ireland situation.  The current protocol there is due to expire next Wednesday and with the UK’s intent to unilaterally extend it, this date also serves as a deadline for some kind of mutual accord to be agreed – failing that it will start to go through the courts.  It shouldn’t be lost that the protocol expires two days before Good Friday and though this doesn’t immediately put the 1998 agreement with the same name in jeopardy, it would be a slippery slope thereafter.  Irish foreign minister Simon Coveney has already said that if the UK can offer a detailed “road map of how it plans to proceed, then the EU could look at flexibilities, including extensions”.  This is no small concession, so we would expect the UK to reciprocate in the coming days and to provide some more clarity on what developments can be targeted so that this doesn’t become a repeat performance in six months time.

Staying with borders:  The UK is imposing a travel ban and a fine of £5,000 for anyone travelling abroad without good reason.  The proposed legislation is due to be voted on in parliament this Thursday and is aimed at tightening up restrictions ahead of the Easter and summer holidays.  Currently no holidaying is allowed before 17th May, but this would extend to 30th June under these laws.  This won’t be without protest in the  Commons, with the 1922 committee set to voice their concerns.  Additionally, there is a vote that will let the government retain the powers of lockdown until October rather than let the sunset clause in the original legislation see them expire at the end of this month.  It’s likely too that this will pass the vote, giving the government an easier time of it if they do need to bring in short notice, or localised restrictions.

The government has imposed sanctions on Chinese officials and a state security body over Xinjiang human rights abuses. The move coincides with the US and Europe also applying sanctions on China and China retaliating with their own sanctions of 10 European individuals.  China has condemned the UK’s move and said that the “accusation against us in Xinjiang is totally groundless, and not based on facts” despite the UN and other human rights groups saying that more than a million Uighur people are held in detention centres.  To catch up on what’s going on there, the BBC has a piece from last month.

Russia has said that they and China should be working together to beat sanctions imposed by the West.  They want to “bolster their technological independence, by switching to payments in our national currencies and  global currencies that serve as an alternative to the dollar”.  The words from Russia’s foreign minister who was in China for two days of meetings with his counterpart.  According to the Times article, the timing of his trip and his active pursuit of siding with China will play well with Beijing who would also be keen to look at alternatives to the Swift payments system which, it is claimed, has been instrumental in enforcing sanctions imposed by the US.

In the US, there are two views to the pace of recovery.  Fed Chair Jerome Powell still says that the work isn’t done and the risks remain high.  Meanwhile, his predecessor, Janet Yellen is saying that they could be back to full employment as early as next year and that “people will reach the other side of this pandemic with the foundations of their lives intact and I believe they will be me there by a growing economy”.  Words like this from the Treasury Secretary will make the Fed’s job of convincing the market that things aren’t going to run too hot all the harder, but it’s difficult to argue with the economics of a vaccination programme that’s rolling out swiftly, pent up consumer demand and a couple of trillion dollars on the way to paper the remaining cracks.

Biden’s next spending spree could be even bigger, with $3 trillion being reported as his infrastructure spending number. Though the White House yesterday called the reports of the spending spree “premature” they didn’t dispute the number. The New York Times has a rundown of the proposals and the aggressive approach the administration is looking to take as well as the challenges he may face in getting it through.  The plan is two pronged and will concentrate on infrastructure development and renewables, and improving US based manufacturing and high-technology on one hand.  On the other, he wants to introduce tax breaks and benefits for working families, students and people that have been “left on the side-lines of the job market”. If you add in these tax breaks and incentives, the plan actually runs to around $4 trillion, which could only be financed by tax rises. Such a move would certainly be voted down by Republicans, so there will need to be all kinds of tactics at play to get this through.

Looking to today:  We’ve already seen UK unemployment numbers, which actually fell for the first time since Covid hit last year.  The headline is a little misleading to the reality that we’re currently in, with furlough still supporting an estimated five million people and the number of people claiming work related benefits rising to 2.7 million  which is more than double where it was in February of last year.  Estimates are that there are 700,000 less jobs in the economy than there were a year ago.
That was the data highlight and the rest of the day is given over to central bank speakers, including Andrew bailey speaking as a panellist on a discussion of how to unlock investment to get to net zero.  Later in the day there are a selection of Fed speakers who will no doubt be trying to talk down the prospect of rates rising.

Be well.


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